Wednesday, June 22, 2011

From the Treasure Chest

On my computer I have a database file that contains almost 50,000 email files. I probably refer back to and search this file more than I even realize. It's one of those things that you don't quite realize the value of it until you suddenly face the loss of it (perhaps like Satoshi Nakamoto and all his "millions").

Very recently my computer crashed from what appeared to be a really nasty virus that apparently wiped out my hard drive. Thankfully I was able to recover everything, even my Treasure Chest email file. And full, 100% credit for the recovery goes to one of my greatest supporters, Warren, who told me exactly what to buy, what to do with it, and even paid for it! Thank you Warren!

Here is Warren's current project, SLV Database, which Bron mentioned the other day in PMs and the LME Warehouse Scam:

"Which is why I am very interested in this ETF bar list project and am doing what I can to help, as this I believe holds the potential to reveal just how big that dark pool of stock really is."

Check out Warren's project, and if you see him, thank him for saving FOFOA's computer!

Anyway, I thought I would celebrate my full Treasure recovery by sharing with you all a few nuggets from The Chest. The following are just a few recent highlights from my email file:


I am fortunate to have found your blog in more ways than one would believe. :)

I have been reading your posts with much interest ever since. You write very well.

This sounds is a little crazy cause I feel like I hit a Vegas jackpot or something.

I came across bitcoin awhile ago and was intrigued so I ran the generating program for a while but I cannot remember why I had stopped it. Although it really doesn't matter with all the what if's. Anyway, reading your latest post sparked my memory in that I had looked at it. I am amazed at how it's evolved with even a trading market. I reinstalled the program to have a look at it again and to my surprise I had 50 bitcoin credits! I only remember just running it for a couple days so a quick calculation showed USD value of a little over $800 worth of bitcoins (as of last Saturday). I sent the credits right away to market (mt.gox I think) and surprisingly they sold quick. The funds from the trade went again right away to which handles exchanges for cash through a bank transfers. So far so good but I will know in a couple of days of the successful transfer.

I think I will be trading those bitcoin generated USD's for a nice 1/2 oz Canadian Maple or Australian gold coin.

Thank you for posting about bitcoin. I probably would've never had a second thought about it otherwise.




A few questions – maybe you have already answered these. I need to go back and reread all your posts again.

Regarding the stability of the dollar: What is the significance of the Saudi currency being pegged to the dollar? What is the significance of the Yuan being pegged to a currency basket heavily weighted in favor of the dollar? As long as these heavyweights not only accept dollars, but go so far as to bind their own currencies to the dollar, it seems like the petrodollar system may be able to limp along for a long long time. I would expect a de-linking to be a sign of an imminent collapse, but it is diffiult to imagine a collapse as long as the links remain. Other lesser but notable pegs include Hong Kong, UAE and Venezuela.

Hello R, I don’t know how much you know about the different types of currency management, but this is a good paper. It is a debate in 2001 between Robert Mundell (“father of the euro”) and Milton Friedman.

Pegging is arguably a better choice than a “dirty float” in which you surreptitiously intervene. Pegging is one step down from a hard fixed exchange rate like California shares with Texas, or Greece with Germany. And sharing a fixed currency is really no different than sharing any fixed scientific metric, like a meter or a gram. California can still have to pay a higher interest rate than Texas as Greece pays more than Germany (from private debt markets). The fixed currency is not the problem any more than the shared weight of a gram should be a problem. So a pegged currency would be analogous to the meter being pegged to 3.28 feet. Two countries use different standards, but they peg their conversion rate.

The problem is with the perpetual US trade deficit. In order to stay pegged to the dollar, there are only two things these countries can do. And most economists are only aware of one of them. The way everyone thinks it is done is by recycling those dollars into US assets, primarily Treasuries. The Chinese (or Saudi) exporter receives dollars and exchanges them for local currency at the bank. That bank then sells them to the central bank for freshly printed currency, and the CB then buys US assets with the dollars.

And since the US is not in the business of selling off the farm, we sell government debt paper. This has the effect of funding the US government through the trade deficit and exporting the currency inflation to those trading partners that must print their own currency to stay pegged. If they were to buy US-made products with those dollars rather than Treasury paper, then there would be no trade deficit. But then the American economy would have less goods, more cash (inflation) and the government would have to find another stream of funding.

But there is another thing they can do (and are starting to do) with those dollars we are sending them for their goods. They can buy gold on the open market. It really doesn’t matter if the exporter that receives the dollars buys the gold himself, even inside the country, or if the CB buys it from London. If it is purchased in country by citizens, that will raise the internal price of gold and create an arbitrage opportunity that will cause gold to flow into the country until the price differential (inside and out) is equalized.

So this is a way to use your excess dollars on the world market, rather than inside the US, which also helps keep your currency pegged without running into a foreign exchange crisis. I have my own theory that the actual physical flow of gold into China corresponds to money that Ben Bernanke must now print that was previously being funded by the PBOC. This takes a long chain of thoughts to get there which I’m not going to write here, but I think you can get the concept intuitively.

Buy gold (instead of Treasuries) with your excess dollars received from selling to products or oil to the US. As long as you buy on the open market (as opposed to dark pools as the Saudis used to do or from mines inside your own country) this drives up the price of gold and causes a physical inflow into your country. You no longer have to print equal amounts of your own currency so you have stopped your internal monetary inflation and, instead, channeled it into the price of gold (inflation only against gold, not life’s necessities). The Fed, in turn, is forced into “QE” which is essentially printing those dollars you would have given to Treasury since Congress can’t cut the budget. Also, those dollars you used to buy gold in London or Zurich will eventually find their way back into the US through private channels and add inflation on top of the printing the Fed is doing.

So now, you’ve sent all that monetary inflation back into the US, and still kept your currency pegged. And if you follow this train of thought far enough, I think you’ll find that it leads to stresses that will ultimately break both the US dollar and the paper gold market without ever officially “de-linking”.

The physical gold must continue flowing into the physical boundaries of trade surplus zones while the price of gold rises. Weight-based flow and price level offset each other somewhat. But ultimately this will break the paper gold market because we’re talking about physical flows from the debtor zones into the saver zones. And now the US finds itself between a rock and a hard place. The hard place being that dollar interest rates in the US must skyrocket which would destroy the dollar banking system, Wall Street, the US government welfare state and the US economy, or else the Fed must print to oblivion to keep rates down and suffer the ravages of hyperinflation. That’s the rock, because it will win out over the hard place seven days a week.

Question: You frequently refer to financial wealth “going to zero” – but this seems to be an exaggeration. Many financial assets may go to zero, but other forms of intangible property (such as shares in a company with capital assets and no debt) should have some value when all the dust settles, no?

FOFOA: I think it is mainly debt-based assets that will go to zero because their numeraire will be hyperinflated. Even if interest rates were to skyrocket they’d go to pretty near zero. Equity assets will suffer the ravages of economic hardship brought on by the dollar’s collapse, but you’re right, they won’t lose all value. In Argentina, the stock market lagged the currency devaluation. The stock market only doubled in nominal price while the currency it was denominated in devalued 3:1. So if you had 3 pesos in stocks before the devaluation, you now had 6 pesos after the devaluation but they were only worth 2 of the old peso value. So you lost about 33% being in equities during the currency crisis. I imagine it could be much worse than this in US equities during a US dollar devaluation.

Question: You refer to freegold as the natural consequences of the end of fractional reserve bullion banking. I can see how a worldwide run could crash the system, but in the aftermath what would prevent an eventual return to fractional reserve bullion banking? Giants may someday once again have some risk appetite to lend out their bullion holdings, no?

FOFOA: Against what collateral? Gold is (will be) the ultimate collateral. To protect gold’s status as such, and its invaluable contribution to a stable monetary system, courts will not enforce the forfeiture of any lesser collateral in the failure of a loan of the ultimate collateral. This will be enough to prevent the lending of gold, which will be frowned upon by the system.

The only reason to borrow the ultimate collateral is to short it. Can you see why a newly stabilized system would frown on this and therefore not support it if and when it goes bad? If you want to put your gold to work you just sell it and then put those dollars or euros to work. You don’t lend it out because you might not get it back.

Question: Regarding the onset of hyperinflation: Do you expect that the initial loss of confidence will come from a foreign government? Or from the private sector?

FOFOA: I think it will come from a panic in the private sector, because even though foreign governments have already lost confidence, they will never take overt action to destroy the system. That’s the kind of thing that starts wars.




I can imagine you must have a ton of emails so thank you for finding time to reply. At your leisure, is there anything besides storage in my home or backyard (in other words paid storage) that you would recommend?


Hi V,

I think a good rule of thumb is that each person should take responsibility for his own wealth. This is kind of what Freegold or a meritocracy is about, personal responsibility. As I have written in the past, if you have too much wealth that you cannot take personal responsibility for it, then this crisis will solve your problem for you one way or another.

I know one guy who has around 2,000 ounces of physical. I don't know where it is, but he has led me to believe it is under his direct control and possession. He sent me a snapshot from his computer holding a single, monster 320 ounce coin. So he has at least that much under his immediate physical control.

I'm sure there are many safe storage options in your town. I've heard of "private" vaults, like a bank safety deposit box, but not at a bank. Or perhaps it is best to diversify. Some here, some there. If diversified, I'd be fine with some in a bank deposit box. I don't know. Seems like a very personal decision to me. I suppose if you had ten million in gold it would be a good idea to keep some in a paid vault in Switzerland. You'd probably have a paid-off house there too, and a gassed-up car in the garage of your Swiss chalet. But even a million in gold today fits in a very small box (or safe). That's the beauty of gold!



Hello FOFOA, hope you are doing well. I just got home from a rafting trip through the Grand Canyon and brought your (at the time) most recent essay. Thank you for yet another thoughtful piece, it provided me some enjoyable reading in a very beautiful setting. It even spurred on a great conversation with my friend when he asked me what I was reading. I thought you would enjoy this pic of the view I enjoyed while reading your essay. Thanks again for consistently great work!


Hey, check out this picture one of my readers sent me!

Har! That's excellent, FOFOA!

And the untold story is that when they unexpectedly ran short of toilet paper mid- journey, they began conscripting their supplies of bread for that duty in a valiant sacrifice to preserve those precious pages, thus sparing the keen insights of FOFOA from an inglorious end.



I just wanted to extend my respect to you and do my part in supporting your efforts. I hope my small donation will help:) Your writings, as well as those of Another and FOA, have really opened my eyes in the last few weeks. I don't post in the comments section of your blog, or many other blogs for that matter, but I read and learn as much as I can from you. You're a fantastic writer and you have a brilliant mind. I'm happy you are sharing your mind with us and stimulating intelligent thought and conversation. Our world can always use more of that! haha.

I live in southern BC, Canada. Just turned 33 and I'm on my new path as a prospector/ Placer gold miner after giving up my profession and cashing out on a few investments in a HOT real estate market a few years back. All is well and I enjoy my new lifestyle immensely:) Spring is approaching once again and we'll be back out on my claims collecting gold very soon. I'm also in the process of selling my small orchard property and stepping down to a smaller acreage so I can invest half of my savings into gold bullion. I'm even selling my beloved hotrod!! 1934 ford Tudor Sedan:) It's kinda hard to part with it but I feel it in my soul that gold will prove to be a much better investment in the future.

I know how you feel about gold mining when Freegold naturally takes effect, but I feel that Placer mining will be a bit of a hidden bonus to those "in the know". There are just way too many creeks and vast open spaces up here to properly police. I have a feeling that there will at least be a grace period where they won't be able to keep track of exactly what people are doing and where. I have friends that pull at least 50 ounces a year and not a single person ever sees them or knows exactly where they get their gold. That is including the government mining inspectors and Department of Fisheries.

To further expand on this; the gov doesn't even have a clue that some of the claims are as rich as they are. For example, I have a claim that's located on a creek that has "official" reports of only 50 ounces in its whole history. The old timers never reported the exact amount of gold they were pullin' out in almost all of the gold bearing areas in this province from the beginning of the first gold rush in the mid 1800's. My claim with the 50 ounces reported is much, much richer than that:) I've located documents and personal journal entries from the last living family member that mined the claim back in the 40's. They pulled just under 3000 ounces from one section of my claim and estimated their reserves at another 3000 ounces from a section that they never touched due to old age/retirement. They kept secrecy at all costs, a family secret that has remained hidden until only a few months ago. Anyway, just a little something extra to think about.

I could see the gov implementing some sort of laws regarding placer gold though, and regulations to try to prevent the sale of it into the (official)market at untaxed levels. However, it is not too difficult to smelt placer gold into bricks:) though they wouldn't be officially minted bars.

Well, I don't want to take up too much of your valuable time so I'll end here:) I hope I've given you a little something extra to think about regarding gold mining of a different sort.

Thanks so much and keep up the great work:)



I have just sent a donation of $100.00.

Like so many others, I find your blog a gripping read, and I take its advice to heart (by buying bullion), though I have yet to post any comment there.

I am particularly intrigued by a statement you made in your post Freegold Foundations:

"It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?"

I have a personal and financial, as well as an intrinsic intellectual stake, in the following questions (which I believe you will find to be of intrinsic interest) regarding these sorts of "discreet collectible items":

Do you expect them to appreciate at near the rate that gold will appreciate when we get Freegold? Or did you mean only that they would hold value while paper collapses?

At first glance, the latter seems likely to me, since, as I understand your argument, the Freegold spike will happen primarily because there are many more (paper) claims on physical gold than there are bars and coins to satisfy those claims; whereas these "discreet collectible items" will not enjoy any such spike, as there is no excess of paper claims upon them.

However, other considerations may pertain. As you presumably know, Goldsubject(
HERE) popularizes Freegold to mean that, because "there simply aren’t enough physical goods in the world to satisfy the demands of all the money and other paper wealth that exists", you could get Freegold (even if paper claims on physical gold could all be met by matching bars and ounces for satisfaction of those claims).

While Goldsubject claims that (his understanding of) Freegold means that all of the money fleeing paper wealth will flow to physical gold, that result seems unlikely to me, particularly since so many "investors" are taught to diversify. Given your confidence in "discreet collectible items", why would you not expect investors to diversify into such items as they flee paper wealth? But, would they do so at anywhere near the pace of their flight into bullion?

Moreover, would not much depend upon the quality/rarity of the "discreet collectible items"? Wouldn't, say, rare classic cars do much better in this environment than, non-distinctive real estate; but again, would this gap increase at anywhere near the pace of that of gold in Freegold?

These issues are of particular importance to me, as I own numerous extremely (in one case, supremely) important historical objects, which I presume to be worthy of inclusion in your list of "discreet collectible items".

Insofar as that such items have little chance of keeping pace with gold bullion when Freegold emerges, I ought to dump these objects ASAP for lower prices than I judge them to deserve, and pour the proceeds into bullion.

Insofar as that such items have a substantial chance to keep pace with gold bullion when Freegold emerges, I ought to keep these objects as diversification, until I obtain for them sums in keeping with what prices I judge them to deserve.

So I anticipate with great interest any thoughts you have about the issues described above.

If you choose to reply to my queries, I will be of a mind to pursue with you other related issues of intrinsic interest, e.g. that the Exeter pyramid puts such "discreet collectible items" as real estate and fine jewelry (this surely having no counter-party risk) quite far above the "power money", and above even the paper assets from which he expected capital to flee when all paper assets became distrusted for their counter-party risk.

I would appreciate any response that you could send. A separate blog post on these issues would also be of interest; feel free to quote me as you wish.


Dear J,

Thank you very much for your support and also for your query.

When I mentioned those items in the Foundations post it was only in the context of being a true physical wealth holding. Not in the context of a transitional revaluation. You’ll notice that these items tend to be the kinds of things that the super-rich have in abundance. The super-rich spend lots of money but lose little value, because they buy fine (and rare/scarce) things. This is the way wealth can and should be enjoyed.

As to these kinds of things revaluing upwards with gold, I don’t really see that happening. Collectibles already conform to the “rules” that gold will conform to under Freegold. Collectibles have unambiguous owners. When they are sold, there is an unambiguous seller and an unambiguous buyer. There are no pool accounts of collectibles with unallocated account holders. There are no circulating (trading) “paper-collectibles.” There are not more “claims” on collectibles than there are physical collectibles. Etc.

This may apply to your question. Someone asked me last week:

"You’ve said hyperinflation and freegold are separate events. I can only imagine them all rolled up in one messy ball. Would love to know how you see the separate events relate to each other as they unfold separately, if you haven’t already covered it."

I replied:

"They will most likely be rolled up in one messy ball. But thinking about it in that way makes people miss that they are distinct, discrete events that will be happening at the same time. For example, if hyperinflation takes the price of everything up 1,000,000%, gold will go up 40,000,000%. But only gold. Everything else, silver, cans of peas, etc... goes up 1,000,000%. So gold's FREEGOLD rise (that extra 40x rise) is in REAL TERMS because it is relative to everything else REAL. While everything else only rises in NOMINAL terms. Can you see the difference?"

So the question comes down to how specific collectibles (since they are not fungible wealth like gold) will perform. I don’t think there is an answer for collectibles in general. I think some will perform WORSE than silver and cans of peas. I think some will perform much better! And I have a hard time imagining any that will perform as well as gold or better, but perhaps a few will.

Some of the most-rare pieces are already being revalued upwards now. Freegold will not necessarily deliver a dramatic revaluation, but the years prior to it may. Others will be overvalued in the run-up and therefore may perform worse than inflation. Real Estate may be one of these since it is generally priced with leverage. However the best of the best pieces of real estate, those that trade with no leverage today, will likely do as well as inflation.

And then the next question is would it be worth trading an extremely rare item for an abundant one like gold for a profit from the transition? I cannot answer that question for you. “It depends!” On many things. I think it would have to be analyzed on a case by case basis for each and every item. And then think about the liquidity of those items. Will the people that would buy them today be in gold through the transition so that they would still be able to buy them tomorrow? Lots of things to think about. Read my old post
Mona Lisa or Ben Franklin. But try to imagine it as “Mona Lisa or gold?”

Of course these are only my guesses based on intuition. I hope they help!



Thank you so very much for your extensive and thoughtful reply; of course intuition has to play a large role in any such analysis.

The sort of items I am talking about can see seen at http://www[redacted] .

Once I've really been able to mull over your thoughts, I may get back to you on them, if that's OK.


Hello J,

Well that looks like quite a collection! What a nice and rare [redacted]!

A couple thoughts come to mind initially. The first is wondering if you are a dealer first and foremost and a collector second. Or are you a collector first and dealer second? This goes to the enjoyment factor of owning such precious artifacts. And also, probably, the discount at which you obtained the items since dealers are more particular about their purchase price.

Also, I would have to look at collectables like this in a similar way to numismatic coins, which I personally stay away from. The reasoning is that I view numismatic prices as having two distinct value components: the melt value of the metal, and the premium on the art, history, age and scarcity of the piece. Freegold is a revaluation of the melt value component only. And in the case of many numismatics, I expect the premium component to actually shrink in real terms. This can already be seen happening in some cases as the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare.

Another lesser consideration is that ANOTHER was writing more for people holding their wealth in paper, not in real things. For these people gold bullion is a much more urgent consideration than for someone like you.

Consider the scenario of the dollar’s purchasing power falling 90% while gold revalues 40x upwards. For the average saver in an average pension fund or 401K, that is a differential of 400x. Whereas your items may only face a differential of between 7x (for gold-based items) and 40x for other metals. (That's the difference between keeping what you have now versus trading it for gold bullion before the punctuation. Just a very rough guess of course, but in any case much less of a factor for you than for the paper bugs.)

The point being, if people like you were all ANOTHER was going to reach, he probably wouldn’t have bothered to come forward. Of course that is no reason for someone like you not to optimize. But because you are already in a much much better position than 99% of the rest of the people, careful consideration should be given to your decisions.

If it were me, I would probably aim to start reducing inventory in favor of bullion. But I probably wouldn’t sell the stuff at fire sale prices. I would simply make it a “policy decision” of sorts to reduce inventory, and for new items I would want to start acting more as a broker rather than growing my inventory. In fact, I might even expand my business into the “rare bullion” sector. You can often find rare and “antique” gold bars at no premium to the melt value, that could then be presented to the same clients that like your other artifacts! And that’s the kind of inventory you wouldn’t mind sitting on through a Freegold transition!

Anyway, just a few “off the cuff” Thoughts.



Thank you so very much for another outstanding reply. Some comments:

1) Whatever I was before, I am now a dealer first and foremost and a collector second, in light of the gravity of the economic situation. As middle class life melts away, (with the attendant risk to social/political stability) there is no such thing as having too much gold; thus, conversion of more illiquid assets into more gold is my top priority; at issue is the timing, etc. of Freegold.

2) Regarding your last few paragraphs about my situation:
I am indeed already in a much better position than 99% of the rest of the people. But much hinges on the magnitude and speed of the social/political upheaval which will result from the collapse of paper assets, with its likely attendant explosion in the violent–crime rate. Will it be necessary to have enough gold to afford a fortress, or at least some bodyguards? (Presumably the Giants have such defenses all lined-up!) Or at least enough gold to be able to purchase safe havens in other countries, assuming that any will be any safer than the US?

Given society’s current prospects, everyone ought to be thinking about how they stack-up regarding the following sorts of considerations:

I am in my late 50s, hence I’m long past the peak of my ability to “mix it up” with gangsters. At first glance, I might present something of an imposing figure (being 6’2”, now 220 lbs., with a booming voice) but, at some point I will start to look old, I cannot be everywhere all the time with all of my loved ones, and these loved ones clearly do not present imposing figures.

I have already (since '07) started working quite hard to reduce my collectibles inventory in favor of bullion, obtaining very much indeed above fire sale prices. But I still have many fewer “dollar worth” of gold than of the collectibles (particularly if these are measured by what I view as their potential worth, rather than by my cost). And, considering these items' illiquidity (particularly at the higher prices), getting such prices tends to require patience, luck, or a fair amount of (preparation) time and work (which I generally quite enjoy doing).

[In recent months, I have been concentrating on improving the chances of a major haul from [redacted]; but this figures to be a relatively long-term project. Thereby I have neglected other possible pursuits, e.g. rushing to get auctioned items of vastly lesser magnitude and value; this because I feel that I am (regarding financial potential) “top-heavy” into the [redacted]. Were it to sell, I would be then diversified in various genres of historical objects/groups. Were I to expect Freegold within months rather than years, I might reverse course and prioritize auctioning of whichever lesser items I could. Seek Home Run later or bunt singles now?]

3) Regarding your comments about coins (insofar as they are analogous to the items I hold) , esp. your view that "the price of the metal rises transferring pressure to the premium component. But only in more common numismatics. Not in the most rare".

Do you mean only that this is happening now, or do you expect the rare ones' premiums to continue to evade the pressure which is affecting the more common ones? (For esoteric reasons, I doubt that this premium- stability will continue to hold for most rare coins, depending on the definition of “rarity”; more on this later, if you’re interested.) This matters insofar as my key items are all, by significant measures, quite rare indeed, although of course far less liquid than are many rare coins (which have a large established market-infrastructure).

Enough for now. I eagerly await your thoughts.


Hello J,

1. Regarding the timing of Freegold – The way I approach it is that it is already overdue by ten years at least. So I think of it kind of like “the big one” (earthquake analogy) that could come at any time. How you prepare for an overdue earthquake is how you prepare for Freegold. That said, once a certain amount of sufficient preps are done, the rest can be executed a little slower so as to aim for optimization. If Freegold happens before you are done, you will still be fine. If it takes a little longer, you will have optimized your excess.

2. Regarding security – The best security is secrecy, bar none. Beyond that, I have bought a number of firearms, I have a CCW (concealed carry permit) and I bought a concealable bullet-proof vest which I have never worn. Cheap insurance for $250.

If I was in the $10m net worth range or above I might look to a second home outside of the country, probably Canada, Switzerland or New Zealand. Below $10m, I wouldn’t worry about it. I’m staying put. Did you see the Richard Maybury piece I posted in the comments about “leaving the country”? If not, you can read it

Regarding the [redacted] versus “bunts”, I understand your juggling act. Unfortunately I think only you can properly weigh all the pros and cons. I doubt you could ever give me enough information to be helpful in that analysis.

3. Yes, I mean that is happening now. I do not expect any premiums to expand like the bullion itself in its new monetary function. There is no reason why they should! It is gold bullion that is changing in both form (physical only) and function (global monetary store of value). I can’t think of a reason why such a unique change would bestow its increase on anything else.




Thanks much FOFOA, I just donated $200 via PayPal and I added a comment to the blog thread. As much as you detest having to write the latest, some of us do need reminders, and I do appreciate the note that you are not amassing physical - just protecting it. I think as time goes on here (near the end), you will have more and more opportunities to connect the freegold foundations with current events (similar to what you did recently with GLD). I'm looking forward to it!

I was wondering if you might do some paid consulting for us by giving us your opinion and Thoughts regarding some IRA and regular investments in CEF, GTU, etc. My concern lies in the future tradability of these as we move closer to reset. These are by no means the only PM investments we have but they are substantial.

Let me know what you think.

Thanks FOFOA,

Hi L,

I’m not sure what you had in mind, but I’m happy to answer questions by email for free. I’m not in any way a financial advisor, just a logical thinker. But if I can help, I am happy to. Then if you feel that I gave you something you would have paid for, you can always donate more at the end. ;)

To be honest, I don’t know that much about CEF and GTU. Are they exchange traded like GLD? Are they closed end funds? Etc. Also, I have another supporter who just switched to a self-directed IRA (SDI). In it he can buy physical and store it at Brinks. His question was whether it would be better to take the hit to close out the IRA now and buy physical discreetly, or to get twice as much physical through his SDI with big, taxable paper trail.



Let me give you some more background so you know better the situation. My brother, Mother, and myself have self-directed IRAs. A portion of my IRA was in Gold AE’s stored in a vault (Delaware). I took the “hit” and had this delivered to me last year because I simply do not trust this method of storage through reset due to the vast corruption “out there”. For the remaining amount, I searched for other G/S vehicles that might be considered next best to the physical. I first heard of CEF from a Rickards interview. Rickards and others consider CEF, GTU, and Sprott’s funds as very good (when compared to GLD/SLV, etc). CEF (Central Fund of Canada) has been around since the ‘60s and they are also managing GTU (gold-only, CEF is 50/50 G/S), and the bullion is independently audited each year, self-allocated, and acts as a store of value to stockholders that cannot be called for delivery. No lending, leasing, trading or funny business – just stored metal.

So, I helped get them into these funds and all are happy with the performance, but my concern is what is likely to happen to these as we progress through reset. So far, I trust these funds far more than an IRA custodial vault, however I have doubts about how a brokerage account will fare through reset. One option is to have the stock certs (available from CEF only) sent directly to us, ride out reset, and see what happens. The more painful option is to liquidate now and buy physical (with all the attendant storage issues and tax hits). I think you have a far better idea than I what the process of reset might look like. So that is the core of my question – and I might even not know enough to put the concerns in the right place.

The CEF website is:
GTU is:

If you feel the need to do a bit more research on these funds, I’ll make the donation commensurate.

BTW, attached is a ppt of pics I put together of the family farm operation we are getting going here in [redacted]. We are doing organic/biodynamic and promoting a diverse environment in which the animals can express themselves naturally and contribute to the diversity. We fear that there will be great need soon for truly nutritious food for folks. And we intend to be able to provide it. Hope you enjoy the pics.

Thanks FOFOA,

Hi L,

Thanks for the pdf. Great pictures! Where did you move from?

I’ll give your question some thought and take a look at the CEF/GTU websites. I don’t like to tell anybody what to do with their money. Instead, I like to enable people to decide for themselves. It is only when you take your own financial advice that you can truly have peace of mind.

What it comes down to for me is liquidity during and after the Freegold transition. I believe that physical gold will be the most liquid form of gold, and your most liquid market will be the millions of people physically within your reach. As paper gold fails, I can imagine people panicking out of even full-reserve funds because they don’t know the difference. You may know, but not everyone does. So I can imagine that even the best funds might track the paper gold price down, and then be taken advantage of by a few big players that have the ability to redeem those for physical at a discount. So I will have to look at the redeemability of those funds. And even if they are redeemable for the individual investor, they are still up in Canada. So that would be a factor to consider as well.

After Freegold, why would someone pay the same amount of money for an irredeemable Canadian share as they could pay for a little wafer bar of physical at the bank? That’s another thought. So even at full reserve, I can imagine funds trading at a discount to physical. Furthermore, we don’t know what the public markets in which these funds trade will look like after a big shock and exodus of investors.

Anyway, those are just a few of my initial thoughts.



We came together from [big cities, leaving our careers] across the nation – [redacted]. Back in ’09 we all decided to come together to do the farm thing recognizing the need for nutritious food and the need for a choice relative to big Ag. We also recognized what is coming and that this (the farm) is probably the best way to help in the long run. If we are going to jumpstart productivity, it better start on the local small farm.

I’m not asking you what to do – just thoughts about the considerations involved in the coming reset. I know that the bottom-line ultimate answer is physical in possession (buried or whatever). And if that is the route we take, then it must be soon. But it’s a matter of making an informed decision with as much realistic likelihood of what to expect down the road. In other words, it would be nice to shine the flashlight down the road as far as possible before heading out. And to some extent this does require an examination of CEF/GTU in the context of reset. There will always be unknowns, but before all is done, I’m expecting the absolute worst from the current “system” (forced annuitization of all IRAs, for example). If there ever was a concentration of psychopathic anti socials it would be in today’s corporate/government/financial structures. This I have researched over many years.

I understand the redemption prob associated with the Sprott funds and I may be incorrect in assuming that the same could not happen with CEF/GTU. And even if they survive, they would certainly trade at a discount. And there are potential political probs since the gold is in Canada. And there could be such decimation to the trading structure/system (as you say) that nothing really trades like today. These are all the things I need to weigh while the fiat can still be converted to physical.

There is one aspect related to that last point. It doesn’t change Freegold – just our collective expectations. If we are headed for a period of worldwide chaos, anarchy, and destruction (a la the psychopaths), then the world asset side of the equation may be far less than that currently represented by debt fiat. In other words the starting point for Freegold may be an environment of much destroyed wealth. Any corporation/system can handle a minority of psychopaths if these individuals are recognized for what they are and prevented from rising to top level positions of “leadership”. We as humans, have collectively failed at this task of reality discernment in our governments/corporations/systems/etc and are likely to pay a very stiff price. If there are any benevolent giants out there, now would be the time to step forward.

Thanks FOFOA,

Hi L,

I’m a little buried in email right now, so just kinda stopping by to say Hi! Thanks for the updated pdf.

As far as gold having a lower value because of destruction of wealth, that is not the case. First of all, the fiat “matrix” disappears and leaves the underlying real world intact, just like the real matrix in the movie being turned off. Yes, there can be a depression and whatnot, but gold has this strange ability to stretch its value out into the time dimension rather than just a snapshot of our 3D world. This is a result of the giants having an intergenerational proclivity for the stuff. Has nothing to do with us shrimps, except to the extent that we get to go along for the ride. This post talks about that time dimension. It’s how gold can have a higher gross value than all paper wealth in existence today. And how gold can keep its value even in times of recession:



Just read your Victor post. The “Cleaner” pic matches so well after reading Victor’s response, LOL … Paper gold must have reached a kind of status of currency (fiat) by now. A currency that varies in value with respect to other currencies via the paper spot price of gold. So there must be some higher level trading strategy between Forex, paper gold, and oil, (and maybe other commodities) that I don’t understand and that is not shrimp-friendly.

Anyway on the question of CEF/GTU, it might be better to ask the question in the form of which bullion institutions are likely to survive reset intact assuming that reset does not entirely decimate the current financial trunks and major branches of the system. From what I can tell, CEF/GTU are well-managed, the people are good, and the audits are good. The prospectii are geared to the current system but other than that, and the uncertainty of what the post-reset system will look like, they look OK wrt commitment to the shareholders. I realize that much bizarre can happen in many arenas and there is no crystal ball. I am a bit reluctant to take on more physical but on the other hand, none of us like the idea of our IRAs turning to vapor. I’m not asking you to analyze CEF/GTU beyond your own curiosity, but to look at it as to how such an institution might fair through reset. Your idea of how that might proceed is far and away better than mine – so any Thoughts are much appreciated by all here.

Thanks FOFOA,

Hello L,

I took a quick look at the websites for CEF and GTU. I couldn’t find anywhere that it said shares could be redeemed for bullion at any level. Assuming this is the case, the best hope I would have for the success of such a Trust is that its model catches on in Freegold and more of this type of Trust emerge. But for many reasons I doubt that will be the case.

I cannot point to a specific reason why either of these Funds shouldn’t trade at close to their NAV, other than that the holder of a share will not have the same freedoms as the holder of a gram of physical. On the other hand, I can think of a whole host of scenarios in which the shareholders end up getting screwed relative to the outcome for physical gold holders. And if you bear these in mind, you might see how they could become self-fulfilling in the end as more and more people become able to think things through in this way.

1. Freegold represents gold undergoing a change in both form and function. Form: Physical only, no paper gold. Function: Main international monetary and financial system’s primary reserve asset and international settlement medium. The divergence of the value of gold away from other things like silver and oil will be a snap! or a gap on the charts as this change takes place hidden from the markets. It will not be a matter of the trading markets shifting to value gold vastly more than other things. It will be a simple monetary reset. And with this may come any number of strange occurrences.

The thing to keep in mind, no matter what happens, is to ride it out! Don’t act rashly. Just relax and let your gold lie very still.

For example, some politicians may attempt a confiscation of some sort. I’m not focusing on the USA because this could happen anywhere. But it will be very short-lived because it will cause massive capital outflow and will net very little for the offending government. Wherever it occurs it will have devastating short-term effects and be quickly repealed. That’s what I foresee. And that’s why it is important to understand in advance, so you can just sit back and watch the show.

However, the victims of such a move will likely be those whose gold is stored by a third party. These will be the easiest targets for stupid politicians. Even the most honest and upright fund manager will quickly hand over your gold rather than face any kind of legal or criminal threat. When I say offending governments will net very little, that very little will come from places like GLD and CEF. And it won’t be returned once the law is repealed because you will have already been compensated in cash at the paper price of gold while the physical price was in hiding.

2. As I have written about it is likely that the new IMFS will not allow the lending of gold in any way, shape or form. This is not a requirement of Freegold, but it is the logical conclusion we can expect from rational lawmakers. This would likely invalidate such funds as CEF or GLD since the shares can be lent and sold short. This will be seen as deleterious to the newborn monetary system.

So the question then becomes how to dispose of unsecured creditors like the shareholders. If you are really lucky they’ll melt down all those 400 oz. bars into little bits that can be divvied up in share-sized baskets. But I wouldn’t count on that outcome.

3. Depending on how long the “gold in hiding” period lasts (which I have guessed could be between a week and 6 months), there may be a concerted effort to cash out all fund shareholders during this time. There will be a significant incentive to do this! Any fund manager that can either close down the fund or force a buy-back of the shares will see a huge windfall on the gold.

This may seem like something only a dirty rotten scoundrel would do. But I can imagine that things play out in a way that even the best of them end up doing this.

4. On the other hand, you may be sitting on essentially worthless shares for up to 6 months, hoping everything turns out in your favor once the BIS Freegold market opens for business. Imagine, if you will, the paper price of gold crashing to $200/ounce for 6 months. No physical is trading anywhere because no one knows the price. The dollar is undergoing hyperinflation.

On paper, your entire IRA is wiped out. The Canadian government offers a premium payment to shareholders of 100%. The offer is $400/oz. for your gold shares while the paper price is sitting at $200/ounce month after month. Do you take the offer? What if it doesn’t work out in the end? What if you don’t get the Freegold price for your paper shares? Then you would have been a huge fool not to take the Canadian offer. So what do you do? What decision will you make at that moment in time, not knowing how the future will play out?

5. I could go on, but I don’t think I need to.

Larry, you have gone to great lengths to move your life [except for your savings] off the grid and onto a place where you are in control. I tip my hat to you, sir!



Thanks much for your response and insights, and I much agree with your points and the picture painted. So the plan here is forming. The subject might make a good future post since I suspect there are many more in a similar position.

I never got to any more pdf pics, but here are some of the latest ones that we put together.

Take Care,

Thanks FOFOA, Here is another donation from us. Thanks for the insights. I know what we are going to do. Take Care, L

Dear L,

Thank you once again for your generous support!

I’m happy that you found my email to be helpful! And once again, great pictures. It must be fun starting a new life of farming, although I imagine it’s also a lot of hard work!

Just out of curiosity, which of the four arguments did you find most persuasive (in my last email)? I personally thought #4 was the most powerful. Because it sets up a situation in which you may be faced with a tough decision in the future in which you would have no way of knowing the final outcome or the best choice. Avoiding those kinds of potential future conundrums is what preparation and peace of mind is all about, wouldn’t you agree?



Yes, I think point #4 was the most powerful along with the last para of point #1. I think this had the most impact because #4 suggests a scenario that strikes an intuitive chord. And the easiest route is always taken by politicians always in favor of their own skin. So, everyone resonated with this. And yes, everyone agrees that peace of mind in that arena allows us to concentrate on much more timely concerns as all this plays out. And preparation it is.

On the farming, much of our motivation has stemmed from an understanding that our food quality (both animal and plant) has been degrading for a very long time and has become the driver in chronic disease today. All of this has much of its source in the loss of soil fertility for producing healthy plants and animals. Human health depends on these two, and thus, the soil. Good men have been sounding this alarm for a long time, but Big Ag and Big Pharma have gained dominance through politics. You will understand this deeply if you read Albrecht’s “Soil Fertility and Animal Health” I have attached. And this was written in 1958! (I know how you appreciate the early warnings) What we hope to achieve is to provide at least a small pocket – truly nutritious food in a time where it will be sorely needed – aimed at helping those that can, in turn, help others. There are many of like mind scattered around the country.

I’ll add you to the list for periodic pic updates so you can see how things progress.

Take Care,


And last, but certainly not least, here is a bonus email exchange from just last night:

So... I've been reading through a few interesting threads on the Bitcoin forum today. I'm starting to think this crash over the weekend may be a much bigger story than the allinvain story that initially drew my attention. And I haven't seen a single person raise what I think is an entirely likely scenario. There are many theories floating around. But I think everyone there may be missing the real story. So I'm wondering what you think of my theory. I'll repeat, I haven't seen this, or anything even close to it, mentioned anywhere. Perhaps it is, but I haven't seen it. It's a theory I just now came up with.

The generally accepted story is that someone hacked MtGox and took control of 500,000 bitcoins and put a sell order in for all of it at 1 cent. Everyone accepts that it must be a hacker that did this, because who in their right mind would do it voluntarily, with their own funds? This is where my theory comes in. I can see EXACTLY why someone would.

The owner of MtGox claims that all 500,000 bitcoins came from a single account that was hacked. That would have been over $8 million worth before the crash. So some of the forumers are questioning whether MtGox is telling the truth. Was it really just one account that was hacked? Who would keep $8 million on an exchange like that, in an account that could be hacked? Seems pretty unlikely, and I agree.

Just before the price hit 1 cent and trading was stopped, one kid scored HALF of those bitcoins by putting in a buy order for $.0101. He happened to have $3,000 cash in his trading account as the crash was happening and he, being a smart kid, bought 259684.77 bitcoins for $2,613. Here is how he describes it on the forum:

I’m Kevin and I'm the guy who bought 259684 BTC for under $3000 yesterday. I really wanted to keep this as quiet as possible, but I don't feel I can anymore. Here's my side of what happened.

On an exchange like MtGox, there are typically hundreds of standing "buy orders" where people are offering to buy bitcoins at various amounts and prices. When a large sell order comes in, an exchange will start with the highest priced buy order, match up the buyer and seller, then move down to the next lowest buy order. This repeats until the entire quantity of bitcoins being sold have found buyers, or there are no more buyers at the minimum price the seller was willing to accept.

I was watching, like many of you, a gigantic sell order burning through the bids. Mt Gox doesn't execute trades very quickly, so we were watching this huge order slowly eat up every buy order on the books. The price started at around $17.50, and within minutes was below $10. At this point, I realized this wasn't merely a large seller willing to accept some losses. This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once.

I had around $3000 USD in my Mt Gox account, from earlier sales I'd made. I looked at the market stats, and realized that there were tons of orders to buy BTC at $0.01 that would likely eat up any remaining bitcoins this seller had on the order. I figured if I put a buy order in for $0.0101, my order would execute first and I could buy a huge amount of bitcoins from this seller before it hit the bottom. The only problem was that Mt Gox was running slower than molasses at the time, and everyone was saying that it wasn't accepting trades. I had to try several times, but eventually I got a buy order in, offering to buy as many bitcoins as I could for $0.0101.

The site stopped responding completely for a while, probably from so many people hitting refresh to see what was going on. When I got back in, I saw in my account:

06/19/11 17:51 Bought BTC 259684.77 for 0.0101

I had just purchased over 250,000 bitcoins for $2613. At the trading price immediately before this large sell order happened, that number would have been worth nearly $5 million. After I regained my breath, I tried to figure out what to do. I wasn't sure what was really going on.


To make a long story short, the owner of MtGox has accused this kid of being the hacker and reportedly reported him to the FBI. The kid says he's not the hacker and MtGox is not telling the whole story. Like, who is the "victim" with 500,000 bitcoins in his account? I happen to believe Kevin, the kid.

The debate now seems to be on whether or not MtGox should reverse the trades. It seems fairly obvious that the "victim" who lost his 500,000 would want the trades reversed. I'm not so sure.

He hasn't been identified, but we can assume MtGox knows who it is. We can also assume this "victim" is asking MtGox to reverse the trades. But here's the thing...

I think he's probably hoping that they DON'T reverse the trades, because he just cleaned out every single US dollar cash buy order on the largest Bitcoin exchange, all in one fell swoop. He could have NEVER cashed out 500,000 for $8 million USDs and he knew it. And the allinvain story showed him that Bitcoin is not long for this world. So how much $$ did he get? Well, let's assume Kevin cleaned out the last half at $.0101 since he didn't use up his whole $3K. Our "victim" got $2613 for that half of his chips. The other half would look like a sloping graph from $17.50 down to .0101. That means it is likely he got an average of $8.50 per bitcoin for the other 240,000 bitcoins, or about $2 million dollars.

Is that a "loss" of $6.5 million? Or a GAIN of $2 million? Definitely the latter!!!

Granted, this is a bold move. Which is why he is now presumably playing the victim, asking for a roll-back, but hoping it is not done. If it's not rolled back, he walks away with the $2 million after cleaning out most of the USD cash on MtGox and everyone, including the owner of MtGox, thinking he is a victim.

So who could this be? Who has 500,000 bitcoins? Well, Satoshi Nakamoto, who reportedly has 25% of the bitcoins, only has about three times that many. So it's got to be a pretty short list. Either it is Nakamoto or one of two or three others. And if it is one of the others, then it was likely his whole wad. If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.

So what do you think of my theory? Any holes in it?


PS. I should also mention that there is a real chance the trades will not be reversed. There are good arguments for them not being reversed, not the least of which is MtGox's own policy as well as the fundamentals behind bitcoin. It's supposed to be irreversible. If you start reversing trades, liquidity will dry up as people will pull their profits from the exchanges ASAP. And this is now a debate, even though some think reversal is imminent. I'm not so sure it is. And even if it is, Nakamoto would still be in the clear with all his Bitcoins restored.

Just like the Giants and gold, he who panics out of the dollar first gets the most gold.


Why dump the whole wad at once, which you know will overwhelm the market? This would be a poor way of cashing out, no? Could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

He threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses."

It had to be something else:

"This was someone attempting to crash the market by selling a huge percentage of the market's total bitcoins at once."

Exactly, it had to be a hack, no one would sell a huge percentage of their orange tickets..ohhh wait


1) it seems mtgox volume (and bitcoin in general also in context of other exchanges as well) is light, so maybe even 20K or whatever smaller dumps a day become suspicious, and he can't slow dump. In your scenario he has the cover of "OMG" it was a hack, it was not a dump by a ponzi insider, and by dumping half or whatever at like 1 cent, the hack ruse looks even more credible, because, from above "he threw away so much money of course it was not intentional?" so the story is as you say, what he "lost" not the 2 million or whatever he pockets

2) who has that many bitcoins??? - only weak hand/ponzi insiders - how could the sell order be from multiple accounts, right?? - clearly they didn't hack 500 accounts and sell from them all in one order, right? this is one guy!

3) why they keep all that in the account there??? - the amount sounds way outta line to keep all that on a site where it's obviously an amount quite disproportionate to the volume trading there

4) whoever had that much coin on there had to see the *slow motion train wreck,* he would have to be a computer guy way way way into bitcoin to have all those bitcoins, so why is it that "Just before the price hit 1 cent and trading was stopped" - doesn't he step up earlier- he has like all these coins and the whole community is going nuts watching this crash - he had to have known and it appears he didn't act - why would he want to watch it fall that far??

because you indulged me, -

"Over the last few weeks the currency's value rose 30-fold
[a ***HUGE*** reason to get out now, 30 FOLD] to more than $30 before falling back to $10 and rising again to $20 late last week. But Bitcoin
prices fell to pennies this weekend following a security breach that allowed as much as $8.75M worth of Bitcoins (at pre-crash prices) to be (temporarily?) stolen.[the story's an easy mainstream media sell, as it passes the common sense sell test - no one would dump all that money right...8.75m...but...]

This follows last week's news that 25,000 Bitcoins were
illegally transferred from accounts on the currency's largest exchange "allinvain's" computer, a heist then valued at nearly $500,000.[hmm, that wouldn't be the mysterious guy and mysterious event of mysterious timing that *just recently* sparked the public debate that ultimately raised the profile of and reaffirmed the whole "we need to take a hard stand and recognize that bitcoin's decentralized ideology means no reversals when you get robbed on an exchange", there is no Mr nice guy fed to take your shoebox of burned money too, we have to say tough shit. Well timed precedent to lend credence to the "real chance the trades will not be reversed," in keeping with speculation that "he" doens't want the sale reversed]

Following Sunday's mess, trading has been suspended and Mt.Gox is
currently down as is competitor TradeHill (where prices closed at $13). Both sites allowed users to trade Bitcoins to and from U.S. dollars and Mt. Gox accounted for nearly 90 percent of Bitcoin's average daily trading volume…

Yup, there it is, no other way out, he could not sell a little a day or whatever, 90% of the market at mt gox - that's the whole game there, it makes no sense to keep that much on there given the volume, and that info crushes the common sense reaction argument I first posted:

"Why dump the whole wad at once, which you know will overwhelm the market? this would be a poor way of cashing out, no? could "he" not dump like 20K a day (or whatever based on knowledge of the volume he could move through the market) to max his return?

he threw away so much money if he did this intentionally, no? It seems clear it wasn't:

"I realized this wasn't merely a large seller willing to accept some losses.""

Actually, maybe it was, except to call them losses is maybe not the best way of looking at it - they were gains above FOFOA's target price - huge gains in fact! he got a bunch out, more than he could any other way, and he also has a cover to hide his tracks and help to keep the ponzi going/keep the balloon from deflating!

Pimps and slingers don't take bitcoins. Who would *not* want the opportunity to indulge oneself in the finer comforts of the moment while also keeping a few "orange tickets" in the "raffle"? After all you can get a yacht if you have enough money.


If it was Nakamoto, it was a $2 million payday for only 30% of his stash. He's still well hedged to the upside if Bitcoin recovers. But at least he got paid for all his work over the last two years, before BTC hit FOFOA's target price.


"Yeah, It's been a ride...
I guess I had to go to that place to get to this one
Now some of you might still be in that place
If you're trying to get out, just follow me
I'll get you there…"


Just in, from Santorini, Greece:


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Robert Mix said...

Wow, what an interesting post FOFOA! It was nice of you to publish some of those emails. Clearly you have a large and smart following.

I am pleased that your supporter was able to help you recover those 50,000 emails! Having to lose that amount of treasure would be a terrible thing.

And DoChenRollingBearing does understand the use and value of databases. I use mine almost every day and append new records every week (my analytical database of our bearing sales in Peru). My largest table has 200,000 records. I keep copies on two computers and eight flash drives.

Re gold, I keep my physical in five different places. As the Bearing sez:

"As money comes in, I take some of it and buy gold!"

Texan said...

Stupid question on mt. Gox, but I thougtt I read they had a daily exchange limit of $1000? Or is that just with mt. Gox itself, ie mt. Gox will buy up to $1000 with it's own cash but others can provide liquidity or not if they want?

On your theory, once the guy sold his first half or so, there was no reason to keep selling. The money had been made. The program had to be automated, right? Why sell at a penny, makes no sense.

Regarding high end collectibles from your thread, I tend to think they are going to fare, at least initially, very, very badly as " collectors" try to find liquidity in order to buy into

Yukon Cornelius said...


Thanks for giving a shout out to the guys over at Screwtape Files. They're a small blog just getting going, but I've found their 'search for the truth wherever it takes us' style refreshing compared to the plethora of sites that hype and exaggerate everything. We need more sites like that and the ones we have to stick around. Thanks again.

Wejn said...


Gabista said...

Regarding why someone would deliberately trade a market into the ground, with no apparent thought to lost value,
I would say the MtGox attack, together with the allinvain theft, together with this:

indicates a professional and co-ordinated attempt to undermine bitcoin's credibility.

Not a financial crime or mindless hacking, but a deliberate, well planned and well executed hit.
Probably state backed.

FOFOA said...

Hello Gabista,

Occam's razor, aka the law of economy, is a principle that generally recommends selecting the competing hypothesis that makes the fewest assumptions when the hypotheses are equal in other respects. For instance, if both hypotheses can sufficiently explain the observed data.

I'd say we both can explain the observed data. So let's look at our two competing hypotheses to see which one requires less assumptions:

1. Someone who just watched his "virtual net worth" rocket to almost $50 million from basically nothing, then back down to $15 million, then back up to $30 million and down to $25 million, all in a couple weeks, decided to book some profits. Recognizing that, as Another put it, "today, your wealth, is not what your currency say it is" and seeing the thin volume on Bitcoin trading exchanges, he decided to make a bold move to take some of that USD liquidity sitting in automated buy orders as a well-deserved payday.

I'm sure a few of my readers can relate to this feeling as it is fairly common. You find yourself with a large paper windfall yet you realize it could just as easily disappear. If you could cash it all in now you're a millionaire. If you don't, there's a chance you go back to where you were a year ago overnight, while you sleep. You decide to make a bold move to at least book some of the profit you feel you've earned. Then at least you can sleep soundly knowing it wasn't allinvain.


2. Someone, probably the state, is so threatened by Bitcoin, a new virtual novelty currency with which you can buy socks and which is trading like tulips in the 1600s, that it hired a group of professional trolls who spent weeks (while BTC was stuck in the low single digits) "maturing" their profiles with 50+ posts so that when Bitcoin eventually took off, they could shut it down with some bad press, goading of mods and rants to entice the vulnerable.

Or... could all those things you're assuming to be state-sponsored pro-trolls be simply explained by the likes of me, who suddenly had our attention drawn to Bitcoin after a spike, crash, rebound, heist and hijack?

I'll have to give this some thought, because you do make a good case.


Gabista said...

But FOFOA, your hypotheses doesn't "sufficiently explain the observed data" for me.

You assume it was a legit bitcoin owner deciding to take profits. Why then did we observe the MtGox bitcoin price driven down to 1c? As "cover", to make it look like a hack? That can't be right. MtGox would have all the details of his account, if legit. They'd spill the beans, no? Cover blown.

If you wanted to cash out all those "hard earned" coins, surely you'd sell gradually into the growing interest, instead of crashing it down to 1c? Surely you'd realise crashing MtGox would result in a strong chance of it being closed, locking all your profits up. The lower you push the price, the higher the chance of chaos and lost profit, for increasingly smaller gains.

Sorry, doesn't pass the smell test to me.


FOFOA said...

Hello Gabista,

It doesn't pass the smell test with you because you still think Bitcoins have value. If you had amassed a million and a half of them without drawing the attention of the electric company, you might have a different perspective.

It will be interesting to see if we ever find out exactly what trades Mt Gox rolls back. If he only rolls back "the worst of them" then our lucky "victim" gets back more than half of his bitcoins (the ones sold for a penny) as well as all the USD sell orders that were sitting above that cutoff. Hmm... How will we ever know?

By the way, where is Mt Gox based?


DP said...

Okay, quit playin with the scissors'n'shit an cut the crap.


Gabista said...


I'm not sure whether bitcoins still have value. I'm sure the technology has value though, and is seen as a threat by the establishment.

"Bitcoins have drawn the attention of members of the US Senate recently following a report that they have been used to purchase prescription drugs, cocaine, LSD and heroin at an online network called Silk Road.

Senator Joe Manchin, a Democrat from West Virginia, and Senator Charles Schumer, a Democrat from New York, wrote a letter to the US Attorney General and the Drug Enforcement Agency asking for the immediate shutdown of Silk Road."

Lots of value in the drug trade I believe.

Touche about MtGox location...


mr pinnion said...

MtGox is based in japan i think
Someone posted the full address on a forum i was reading after the crash.


Matt said...

Have to agree with Gabista on this one. Although i don't know if the state was behind it, i don't know of any stock trader in history who blantantly crashed the market he was trying to exit unless there was a concerted run on. Cashing out and pushing the price down 20%, 30% or even 50% maybe, but driving it all the way to 1c from $17 cause you want some cash just doesnt add up. Noone who wants to exit a large position operates like this. I struggle to see why a hacker would do it either. If not the state than I believe someone wanted to profiteer from collapsing the price - short sales or to buy more for cheaper.

Jeff said...

Wow, look at those server racks. Geometrically increasing computing power chasing geometrically decreasing rewards, with a target price of 0. None of these guys make a store of value/medium of exchange argument. They are all trying to get something for nothing. Ponzi!


Really? You never heard of a stock operator letting a market crash after he has pumped it? It's called pump and dump, and it's been done in boiler room operations for 100 years. Now they do it online and call it bitcoin. The more things change...

Gabista said...

Jeff, no pump and dump operator in their right mind would still be selling at zero. You sell into the end of the pump, not the end of the dump.

Jeff said...


You sell as long as there are buyers, or shares to sell.

FOFOA said...

Hello Matt,

We're not talking about a trader here, and MtGox is not a stock exchange. We are talking about 8% of all the currency in existence. How can you possibly explain the presence of 500,000 bitcoins just sitting there on an exchange with a total volume of 35,000 bitcoins traded per day and a $1,000 daily cash out limit? And supposedly they were all in one account. How many people in the world can possibly have that many? I'd say three or four at the most. If it's four, then those four people own half the bitcoins in existence. We already know that one person owns 25%.

Even the state cannot counterfeit bitcoins. So how could the state (or anyone for that matter) get 500,000 BTC to crash the exchange? It doesn't make sense, even with the state's tremendous power. You'd have to have too unlikely of a coincidence of someone leaving $8.75 million worth of Bitcoin vulnerable and a hacker capable of doing this pulling it off. While it is possible, it is not the simplest explanation.

From what little I know, Satoshi Nakamoto is a ghost, he's never been seen and the name is presumed to be an alias. He could be anyone. He could be your next-door neighbor or your pastor. But the choice of alias does suggest a certain geographical region.

Apparently Mark Karpeles, aka MagicalTux, aka the owner and founder of MtGox, the largest Bitcoin exchange, is also in Japan. What do you think the chances are that Mark either knows "Satoshi" or is "Satoshi"?


Gabista said...

"Even the state cannot counterfeit bitcoins. So how could the state (or anyone for that matter) get 500,000 BTC to crash the exchange?"

Buy them. Price would go ballastic for a while. Oh it did, didn't it... Now that's what I call pump and dump.

FOFOA said...

Only one more day to vote in the poll. So far the ayes have it at 87% with 153 votes counted.

How did you vote, Gabista? BTC musta had some value for the state to spend millions back when it was only trading at $3. Six million total units crossing dollar parody, oops I mean parity back in February musta woken up Bernanke and Geithner with teh cold sweats many a night, eh? I'll bet it was an ESF operation. Gotta get that silk road back on dwollas!

Pete said...

Freegold questions...

I have two not-so-important questions about Freegold that I was wondering about.

Q1) Sticky Prices (if that is the right term to use)

Does anyone think that sticky prices will be an issue with the revaluation of gold? Some people will see the price rise and rise, and at some point will think "I could have bought at $1000USD an oz, there is no way that gold is worth $10,000USD an oz".

Perhaps the simple answer to that question is one of alternatives - what alternatives!?

2) The Anti-Bubble Effect

Bubbles are becoming more prevalent - and I think people are starting to pay more attention to parabolic price charts. Whilst I don't think that the human race is cured of mania or greed, I wonder if the parabolic trajectory of gold valuation in paper money will make people wary to buy it.

I think that between now and that time we will see many bubbles in other products (bitcoin included) that may make people apprehensive to invest in yet another seemingly parabolic price curve.

What do people think of this notion?

Could a parallel bubble in silver, and subsequent popping of it, be enough to scare people out of gold?

Will it even matter at all whether the general populace thinks there is a bubble, when it is really the giants in control?

Will people even have a choice? If there is a mad panic away from the USD due to hyperinflation, what alternative assets do they really have?

FOFOA said...

Hello Pete,

Try reframing your perspective. Your #1 question reminded me of this:

"Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies". -ANOTHER

Let me rephrase your question, Pete:

Does anyone think that slippery prices will be an issue with the devaluation of the dollar? Some people will see the price fall and fall, and at some point will think "I could have bought $1000USD with my oz, no way I'm now buying $10,000USD with my oz, it's obviously worth much more as the price of dollars keeps slip-sliding away".

Perhaps the simple answer to that question is one of alternatives to the dollar - what alternatives!?

To your #2:

See #1, and also:

"Thus, the goal of the rational actor is to choose the X that everyone else will choose (assuming they choose right), but choose it first. In standards terms: pick the winner, be an early adopter." -Moldbug

"In game theory, a focal point (also called Schelling point) is a solution that people will tend to use in the absence of communication, because it seems natural, special or relevant to them... Salience: the state or quality of an item that stands out relative to neighboring items." -Me

"One of these things is not like the other..." -Big Bird


Gabista said...

It's sad to say, but somewhere in the deep, dark bowels of the militarymonetarysecurity complex, there probably is a small group of slightly paranoid officials, living off a sub-budget of a sub-budget of a branch of the sprawling security apparatus, who's life mission is to monitor and disrupt perceived threats to national security from alternate financial systems.

Such are the times we live in...

sackot said...

When I read about the MtGox flash crash the motive seemed obvious to me, but as I've seen noone else propose this perhaps I'm making an incorrect assumption about how the exchange functions.

There is a $1000/day withdrawal limit, so I assumed there must be an equivalent BTC limit. At $17.5 that is 57.1 BTC.

Baddie hacks into account containing many BTC. He sells to cause a crash, and buys into an account of his own. At BTC=0.01, he hopes to withdraw 100,000 BTC from exchange to an anonymous BTC address of his own before detection.

If so, it can't have worked because if it had, the exchange would not be proposing to roll back trades.

FOFOA said...

Hi Sackot,

That's the theory that either Kevin was the hacker or else he foiled the hacker by bidding $.0001 higher. The hacker assumption is reasonable IMO. Personally I find it much simpler than the national security threat hypothesis. My problem with that theory is it requires further assumptions to explain the presence of 500,000 bitcoins just sitting there on the exchange waiting to be hacked.


sackot said...


> That's the theory that either Kevin was the hacker or else he foiled the hacker by bidding $.0001 higher. The hacker assumption is reasonable IMO. Personally I find it much simpler than the national security threat hypothesis. My problem with that theory is it requires further assumptions to explain the presence of 500,000 bitcoins just sitting there on the exchange waiting to be hacked.

Ah yes, I see. I agree that leaving that much lying around needs a good explanation.

Two un-exciting hypotheses for the big account:
1) An internal holding account integral to the mechanisms of the exchange?
2) Daytraders might have fun trading bitcoins--certainly they could not complain about lack of volatility. I would guess there's no mechanism for trading on margin, so that game would only be open to someone capable of depositing a large chunk. The size of the account might suggest how well they'd been doing.

Matt said...

Hi FOFOA, I'm certainly not sure what caused the hack/crash or why it occurred but I don't believe it was a profit motive. Perhaps a hacker just seeing if he could? These guys live and breath making an impact, not necessarily making money. I also don't know why there would be that many coins on the exchange, I just think it doesn't make sense to try to crash the price while you exit. Honestly if you hacked an account with all those bitcoins in it and you wanted to make a big impact (and some money along the way) you would sell it all the way to $0 but if you owned those coins, had developed the system over years and years and years, why just turn around and mess it up? These guys developed this system to make an impact first, and money second.

Blondie said...

Matt said:

"... if you owned those coins, had developed the system over years and years and years, why just turn around and mess it up? "

Because you had reason to believe they were overvalued; that the system would not take off; getting out before another large holder crashes the price on their attempted exit for similar motives?

"These guys developed this system to make an impact first, and money second."

If that is the case, it could be argued that the impact has been made, therefore it is time to execute the secondary goal.


Regarding your #2:
Gold cannot be in a bubble... my definition of a bubble:
"when people start finding the utility of an item to be in its value (ie. ever increasing value or capital gain) rather than its normal utility, then it is a bubble."
This is gold's utility, its storage of value, and it will increase in value when others choose to store value in it too. This is gold reducing the upward pressure on currencies, as a pressure release valve if you will, as FOFOA outlined in the post above, and DP posted here and here.

By my definition gold is not able to be in a bubble, and to say it is is to be either ignorant of gold's function or willfully attempting to manipulate the perceptions of others to keep them ignorant of its function.

We always come back to the same question, the answer to which reveals gold's function: "why do CBs still hold physical gold reserves?"

Matt said...

Hi Blondie, I have to say that I disagree with FOFOA's position that the founders owning a large percentage of the coins, are necessarily weak hands.

They own a large percentage of current supply but that will diminish significantly over the next 10 years as the bulk of the rest of the coins are mined. They also know the potential for bitcoin, obviously if it starts to take up even a small portion of global transactions than $2m to $10m is nothing. I struggle to see how someone with an extreme emotional stake in the outcome of the success of bitcoin would suddenly settle for a couple of mill and crash the market along the way. Its like in the social network movie 'you know what's cooler than a million dollars? a billion dollars' but with bitcoin, if you wanted too you could frame it to be far more than just $1b (if that was where your emotional stake was). These guys would be looking well beyong millions IMHO.

Besides all that, I still think the primary motivation for these guys is likely to be the development of disruptive technology like P2P, piratebay, youtube, facebook, anonymous and lolsec(?), wikileaks, wikipedia, even like the original gates and jobs. The world is changing and that change is being powered by the geeks. Those in the thick of that movement have reputations and pride at stack, far beyond a new yacht. Their peers have proven it possible already.

One more point is that while i can see some rational problems with the adoption of bitcoin, that doesn't necessarily preclude its adoption. Just like VHS vs Beta, we may have all the 'right' information but still get it wrong. In this case I am referring to the potential for a currency collapse to see an incorrect system come into place despite 'rational' reasons for it not too.

Disclosure - My only stake in the game is that I don't trust our monetary system and am hoping for an improved one if the chips come down. I did state on the other thread that I will be buying a small number of bitcoins over the coming months.

Matt said...

^excuse spelling.

Indenture said...

The Wikileaks of Money
"anything can be a currency if the two parties to a transaction agree that unit to be a currency. Whether bellybutton lint in ancient China or paper dollars or euros today."

Jeff said...

Apologies if this was already posted on another thread.

Gabriel said...

To cash out such amount of money (in the $M), you need an excuse. the hack is a very good one, and to be credible you have to give out also "free" BTC.

Anyhow, some trades will be reverted. I wonder if it will not be only this kid how has his trade reverted, and the FBI fiddling with his life.
After that, he can spend his life suing them, won't change a thing.

Of course there is no real transparency there, so we will never know the seller.

The story is a good summary of bitcoin overall: a pyramid scam.

Gabriel said...

I have my own theory that the actual physical flow of gold into China corresponds to money that Ben Bernanke must now print that was previously being funded by the PBOC. This takes a long chain of thoughts to get there which I’m not going to write here, but I think you can get the concept intuitively.

FOFOA, I humbly ask you to actually write a post on this, and your deduction process. I find it fascinating. It is one thing to intuitively get how it works, but quite another to actually understand the framework of its operation. And I am eager...

d2thdr said...

Thank you FOFOA for sharing your email conversations.

You bitcoin hoarders out there, do carry on. Leave the gold to us.

S said...

China Daily this morning:

"Gold's luster is continuing to attract rising domestic demand and China will continue to "outperform" other countries in private consumption of the precious metal, with sales growth remaining above 20 percent over the next two years, an industry expert said. According to the China Gold Association, domestic gold sales grew 21.26 percent to 571.51 tons last year from 2009. Since China deregulated its gold market in 2008 gold sales as a means of investment have surged, with an annual growth of 100 percent from 2007 to 2010, compared with 30 percent for the global investment market during that period."

Mike said...


Not sure if you saw this. It's an article discussing Robert Mundell's idea of making the Euro convertible into gold (at a fixed price it seems).

Thought it could be good fodder for future posts.

Here's the link:

burningfiat said...


I honestly think you're seeing this flash-crash at mtgox the wrong way.

Not a single bitcoin changed hands in this crash!
It was the equivalent of our beloved scenario of paper gold crashing to zero. All the physical gold is still there afterwards. In this case all the real Bitcoins are still there...

Internally at mtgox, I bet that the BTC balance of each user is represented by an entry in an SQL database. The site was hacked (by SQL injection it is theorized)... So were did the 500,000 BTC come from? Well if the hacker had access to the SQL database he could just have created them out of thin air by entering a new value in the database.

What crashed was paper claims on real bitcoins at mtgox. This was perhaps the "freegold revaluation" moment for Bitcoins. Velocity of paper claims (fractional reserved bitcoins) reached infinity (and price zero), while real Bitcoins wasn't traded anywhere, the flow was zero (and price unknown)...

Well, make up your own mind if that was what really happened, but it sure could have happened that way.
Remember that mtgox is not a physical exchange. No bitcoins are moved between accounts when they are traded at mtgox. Only when they are withdrawn, do real bitcoin transactions take place.

Even if bitcoins are not the new "store of value par exellence", we have learned a lot about currencies by seeing this bitcoin market unfold. What has puzzled me the most is the careless handling of bitcoins, in spite of the fact that Bitcoins have been promoted as a 100% non-fractional reserved currency. Well, what is the first thing people do with their cool new cyperpunk cryptocurrency free of fractional reserving? They leave them at the bank/bourse, represented by entries in a database, instead of taking physical possession (by transfering to their own wallet.dat).

It's really hard to break our old monetary habits. If only the bitcoin community had a PBA (physical bitcoin advocate) like FOFOA, then things might have been different.

Thanks FOFOA for raising awareness on the importance of keeping gold (and other items of wealth) 100% in own unencumbered possesion.

FOFOA said...

Hello Burningfiat,

Nice hypothesis! It rings true that an exchange like MtGox would take in BTC and USD and essentially hold them in "unallocated pools" and let its account holders trade them back and forth, taking its small cut out of each trade. So in any given trade of BTC and USD, it is not specific Bitcoins or USD changing hands, but claims on the two MtGox trust accounts. And in this case, the trusts should always be just sitting there, fully reserved, not fractionally reserved.

This reminds me of the recent news story about Brad Ruderman, the Beverly Hills hedge fund manager who is now sitting in jail for gambling – and losing – his clients' money to Spiderman (Tobey Maguire). New Details About What Happened At That Beverly Hills Hedge Fund Manager's Celebrity Poker Games:

"…Perez Hilton says that Maguire was making upwards of $1 million per month.

Also: cocaine and hookers were allegedly at the games.

Someone told Star: “It was known to a handful of us that one player would keep two hookers down the hall of the hotel in another room... He would disappear for 30-minutes at a time, leaving the main players in the game frustrated. In reality, he was getting to do blow (in a room with) two hookers…”

Sorry, I guess the coke and hookers are not really germane to my analogy here aside from the fact that in 'Bitcoin Open Forum – Part 3' I wrote:

"$26 million can buy a lot of socks, that's for sure, but if you cash out into that competing currency called dollars it can also buy yachts and other fun things like coke and hookers."

So this guy, Brad Ruderman, was playing around with his client's money, trying to churn a profit for himself, while fully intending to put back the principle he had "borrowed." Unfortunately, and apparently, he sucked at poker.

And this brings me to one of the flaws I detect in most of the other MtGox theories I read, including yours. Everyone seems to be more focused on the value of the pool of Bitcoins MtGox was holding rather than the value of the pool of USD.

Your theory appears to be that a hacker could have sent that BTC pool into fractional reserve territory by creating a bunch more "paper Bitcoins" out of thin air, and then selling them for the fully reserved USD pool. Is this accurate?

Well, at least your theory accounts for the presence of 500,000 BTC on an exchange with volume that would never justify anywhere near that many sitting in one account! However, it doesn't quite square with Mark Karpeles' first statement:

You wrote: "Internally at mtgox, I bet that the BTC balance of each user is represented by an entry in an SQL database. The site was hacked (by SQL injection it is theorized)... So where did the 500,000 BTC come from? Well if the hacker had access to the SQL database he could just have created them out of thin air by entering a new value in the database."


FOFOA said...


But Mark Karpeles, owner of MtGox, wrote: "It appears that someone who performs audits on our system and had read-only access to our database had their computer compromised. This allowed for someone to pull our database. The site was not compromised with a SQL injection as many are reporting, so in effect the site was not hacked…

"One account with a lot of coins was compromised and whoever stole it (using a HK based IP to login) first sold all the coins in there, to buy those again just after, and then tried to withdraw the coins. The $1000/day withdraw limit was active for this account and the hacker could only get out with $1000 worth of coins.

"Apart from this no account was compromised, and nothing was lost…"

Now, if the 500,000 BTC had indeed been created out of thin air on the exchange by a hacker, and not taken from one individual's real account (of which there can only be three or four possible people in the whole world that account could belong to, and one "most likely" candidate), why would Mark lie right out of the gate on day one and not just admit that the "Bitcoins" that were sold didn't represent real Bitcoins?

That would have made his life much easier. He could easily show the world that the "Bitcoin trust account" didn't even contain that many Bitcoins. Case closed. "Sorry Kevin, you bought a dream, but that's all. And now we'll make sure that this can't happen again. Don't worry, everyone, your accounts were not hacked, it was our SQL. The BTC in your accounts still match the BTC in our trust."

But I still like your theory, Burningfiat, because it raises another possibility. What if it was not the BTC trust that was rendered fractionally reserved by this 500,000 BTC cash-out, but the USD trust? Think about Brad Ruderman while you read these comments by beeph on the BTC forum:


Guys this is the #1 question u should be asking right now and this drives at the heart of human motives. Let me explain to you what's probably going on here

These guys are running an exchange/brokerage, whatever, maybe not legally so but typically the way companies like this are set up is

they have profits/operating expenses, etc (this for mt gox would be their 1.3% fees for profits, expenses would be rent , salary, utilities, etc) but there's also another account which is typically in a TRUST that holds CLIENT BALANCEs.. to cover withdrawals and deposits. This trust typically put ths bank signer as a lawyer or accountant or some impartial third party who's fiduciary duty is to make sure THE SHIT DONT GET STOLEN.

Why... all this red tape and overhead? Well... we've learned over the last 100 years or so that when u dont have this third party.. THE SHIT ALWAYS GETS STOLEN.


FOFOA said...


So here's what could very well be happening. Mercedez or whatever gets fast and loose with the company books.. sure he's making a lot of money but he overextends and buys i dont know.. a luxury apartment in tokyo, or maybe he buys a lot of call options on a 'sure thing', figuring he can put the profits back in the company account before anyone notices.

Now think what started happening the week before the hack? They were having trouble with the 'dwolla API' and people were slow in getting money out. This means he's using peter to pay paul, banking that not everyone will ask for withdrawals at once, etc . But then what happens? a hack.. a panic.. suddenly everyone wants their money out. They issue reversals thru their banks and credit cards.

Only the money isn't there anymore.. because the owners have been paying it out to themselves as dividends, or salaries (whatever is most tax efficient), or investing it in stocks, or just outright hitting the casino with it, because there was never a fiduciary trust set up to prevent

when a crisis like this .. THE FIRST THING THAT SHOULD HAPPEN IS THEY SHOULD RELEASE A FINANCIAL STATEMENT (CURRENT BALANCE) THRU AN ACCOUNTANT FIRM IN JAPAN THAT HAS THEIR FIDICUIARY ACCOUNT BALANCE AND MAKE SURE ITS NOT ZERO! Because if they can't produce this balance.. guess what guys.. you can be sure it IS zero. Right now ALL REAL information is going through 1 or 2 guys.. period. This is a CLASSIC sign of fraud.

Them not releasing this information to the public is A MAJOR PROBLEM. Then they start playing games with stalling and approving low balance accoutns first, cuz if there's a panic it's not the price of bitcoins they worry about its their own solvency.

PS THIS IS HYPOTHETHICAL ( I DONT WANNA GET SUED FOR LIBEL ).. But this little scenario plays out TIME AND TIME AGAIN and is the first place your thoughts should go WHHAAAAARS THE MONEY GUYS? It's not 'paranoid' to want to see the trust account balance, its STANDARD OPERATING PROCEDURE […]

Typically in these scenarios the owners don't set out to be crooks.. they dip into the funds with the intention of 'putting the money right back'.. then something goes wrong, like i dont know, like this major hack, or a law suit, cease and desist letter from the japanese money laundering authority, whatever.. some unforeseen circumstance. Also, the writing is on the wall here... the days of easy money are over.. BEST CASE scenario if mt gox even recovers at all will be a fee war with trade hill, severely diminishing margins. Their best days could very well be behind them. And that 0.65% (lower now) and diminishing volumes as they share their pie with tradehill... fee compared to 100% theft is a 300:1 ratio or so.

Logically presented with this opportunity I personally could see the temptation with 2 alternatives, one a bankrupt mt gox with a difficult legal future, with stiff competition from tradehill, and potential legal threats from authorites.. and a one time score.

you dont get it.. the very access to the money is a corrupting feature that history has PROVEN very few people are above, this is why these regulations have sprung up over the years.. I bet you even bernie madoff started out totally legit."


Blondie said...

"...a one time score."

FOFOA said...

Funny thread!

Hired Detective to Track Down Mark Karpeles, Found Him!

Pete said...

@ FOFOA and Blondie

Thanks for your responses.

Please note that I follow this blog regularly, I do get what Freegold is about.

My second point regarding the 'perception' of a gold bubble simply relates to people's confidence in adopting gold in the future.

It's not a deal-breaker by any means, just a comment on whether people will perceive that gold is in a bubble, if it rises on a parabolic curve, compared to other assets (not so much the USD I guess, as that is a no-brainer).

IMO the media will be all over the 'gold bubble' thing the higher it goes. Will people start to defy the human nature of buying into assets that are appreciating?

Will people get bubble-phobia?

Probably not. But I am interested in what people have to say about it. It's merely speculating on the future.

Blondie said...


If the good that is rising on a parabolic trajectory is the good whose function it is to do so in order to prevent other goods we as a collective do not want experiencing this same phenomena, it is hardly a problem is it?

This good is the monetary standard, the bubble that does not burst.

I believe you already understand this, but no doubt it will be successfully sold to the less informed as "a bubble" for as long as possible, to play on "bubble-phobia" as much as possible. It is likely however, IMO, that there will be much greater and more threatening concurrent phobias to temper this propaganda. ie. buying gold will not be as threatening as the other options (such as do nothing and hope for the best).

FOFOA said...

Hello Pete,

Of course I know you're a long-time regular and that you more-or-less understand Freegold. I've even emailed with you. But there are literally thousands of people that check this blog more than once a day, presumably following the comments. So sometimes I write responses for their benefit more so than for the benefit of the person to whom the response is addressed. For example, here's another one:

Hi Pete - I know the following quote does not directly answer your point about perception. It was written by ANOTHER in response to a "mining cost" question. But if you read it carefully, it does indirectly address your second point about a monetary revaluation being confused with, and/or mistaken for, a commodity bubble. Will people get "bubble phobia" ... or ... "money fever?!" ...

Date: Sun Apr 05 1998 20:06


Date: Sun Apr 05 1998 15:20
oris ( Fred ) ID#238422:

"Is it possible that gold will rise to $30,000/oz in the period of nearest 10 years?"

If you say to yourself: "Yes, it's possible!" then ask yourself a question: "But why? But how?".

To All:
This question is asked much! To this I also add "what price is money?"

Many look to gold and say, "at $30,000, every mine would produce so much that the price will not last", and "with cost to produce below $1,000, all persons would mine gold"! I say, you look at gold and see only a commodity. As world oil currency, it will not be this way. To offer the question:

Your US$, it does cost only one cent or less to produce. It is also a paper commodity, yes? Does the world go into the "paper dollar business" because it can be sold for a dollar and produced for "one cent"? I ask the Mr. Sharfin, "who would buy or who could afford this "dollar" at such a price?" Would not every person sell these "paper dollars" as they are priced so far above production cost? No. And the world, today, does produce these paper pieces as "to no end", yet all persons hold dollars for value! Even reserves!

When any commodity becomes money, the free market is not allowed to produce such without laws to govern that production. As any person, worldwide can produce dollars and sell them as a business, it is "against the law". In the time to come, it will be this way with gold also.

The true value of gold, as a monetary currency, in today's current US$ values, is over $30,000. If all currencies were destroyed, and gold only was used, this value would be higher. However, currencies will be used in the future, as today, only their value in trade will change. They will no longer be held as reserves, without gold at their side!

The time is not that far away for all to learn this, we watch these changes together, yes?

Thank you


Jeff said...

Rickards talks gold

burningfiat said...


Thanks for your reply.

I agree that in principle mtgox should be fully reserved (if the owner hadn't been screwing everyone from the getgo). Well at least up until that moment a hacker might have tampered with the database. Then there would be more claims then underlying assets.

You said: Your theory appears to be that a hacker could have sent that BTC pool into fractional reserve territory by creating a bunch more "paper Bitcoins" out of thin air, and then selling them for the fully reserved USD pool. Is this accurate?

That's about right. Based on the little information there have been released, it was 500,000 BTC in that account, not the equivalent USD. But once the hacker had access to the database, I don't see why he couldn't have created extra USD entries also...

And that could maybe explain this latest info from mtgox:
" [Update June 24 - 02:56 GMT] Pushing until 15:00 GMT.

We have found that balances on some older accounts look significantly incorrect when compared with the old database. At this time we do not know what caused the balances to be off, or how many of the older accounts are affected. We haven't touched the old backend or database, so we're going to import the accounts again once we have found what caused the off-balances.

No money is lost, we still have the records of all transactions that happened prior to the bitcoin sell-off. All funds deposited are still in our bank accounts, and we're going to try and get this resolved by 15:00 GMT.

We look forward to getting everyone trading within an hour of getting users logged in and accessing their accounts.

You can check your own balance using our status tool.

I conclude: There appears to be some inconsistency between database-money and money in bank accounts, but as Magical Tux assures: All funds deposited are still in our bank accounts.

Lets just hope all bitcoins are still in mtgox' wallet also...

We'll see soon enough when mtgox reopens and the bank run begins :-)
What kind of bank run will we see? Will folks sell all their Bitcoins for Dollars and cash out, or will the sell dollars and withdraw all their bitcoins? The last option should be the fastest... I'm excited, and can't wait to see the result.

With regards to my hypothesis not squaring with Mark Karpeles' first statement, I'd say he's lying and just trying to hide he generally writes buggy software. Normal human pride.
If the database consistency hadn't been touched by the hacker, then why do we need the roll-back of the last x trades? Then the trades were legit right?
I understand that the downtime was necessary because of the leaked password-file, but why the roll-back if the database was still consistent with underlying funds?

Kevin who actually got quite rich (in mtgox database money) has some nice arguments against the roll-back

I like the comment you referenced by beeph. It could be... I'm keeping an open mind right now.

I'll go make some popcorn, and then come watch this 10x speed monetary experiment/train crash unfold.
What do you guys think will happen when mtgox reopens: Will Dollars crash? Will bitcoins crash? Have all mtgox users been goxed? Or will the cyperpunk sheep come back into the mtgox-fold and carry on trading database-entries like nothing had happened?

Remember to keep your physical gold dry for the real crash in our western societies. I see the bitcoin-market as a small but interesting micro-cosmos of the real deal...

Edwardo said...

I found the clip at the link below just a tad amusing since, to my knowledge, Karl Denninger has never had anything remotely positive to say about the role gold plays in global monetary functioning.

Now one gets the distinct impression that he has, perhaps, shifted his stance dramatically, albeit quietly.

Ash said...

Neverfox (in response to your comment from the last thread),

I was not saying that people should avoid debating moral and ethical issues all together... I was saying that your conceptions of what is moral and just cannot be the logical foundation for your predictions of what is actually going to occur, or even what can possibly occur. So if predictive analysis is what you are engaged in, then it is a waste of time debating moral or ethical issues.

Roderick in that article was attempting to "debunk" various arguments about why anarcho-capitalism would not be a viable economic system in the future. I understood that, and was not assuming he was making an argument that the current system will lead to anarcho-capitalism. My point still stands, though.

Humans have necessarily existed under a system of "market anarchism" for some period of time in the past. My argument is that we have already seen how viable that system is when socioeconomic relationships become more complex and operate at larger scales. It falls apart. I have read no logical argument from him or any others that convinces me evolutionary dynamics are fundamentally different now, or can be in the future.

"All of that aside, my other response is, "So what?" If I assume for the sake of argument that it is likely, does that mean I shouldn't be an anarchist?"

No, it means other people shouldn't expect the large-scale ideals of anarchists to ever materialize. I'm not morally in favor of large coercive institutions, whether technically private or public, but I do know they will inevitably develop over time as our systems of organization materially grow. IMO, our "morals" cannot change that reality, no matter how strong or widely shared they are.

JR said...

Sheldon Richman's Free-market anti-capitalism, the unknown ideal

“...The Rothbardians and Mutualists have some disagreements over land ownership and theories of value, but their intellectual cross-pollination has brought the groups closer philosophically. What unites them, and distinguishes them from other market libertarians, is their embrace of traditional left-wing concerns, including the consequences of plutocratic corporate power for workers and other vulnerable groups. But left-libertarians differ from other leftists in identifying the culprit as the historical partnership between government and business—whether called the corporate state, state capitalism, or just plain capitalism—and in seeing the solution in radical laissez faire, the total separation of economy and state.
Thus behind the political-economic philosophy is a view of history that separates left-libertarians from both ordinary leftists and ordinary libertarians. The common varieties of both philosophies agree that essentially free markets reigned in England from the time of the Industrial Revolution, though they evaluate the outcome very differently. But left-libertarians are revisionists, insisting that the era of near laissez faire is a myth. Rather than a radical freeing of economic affairs, England saw the ruling elite rig the social system on behalf of propertied class interests. (Class analysis originated with French free-market economists predating Marx.)

Through enclosure, peasants were dispossessed of land they and their kin had worked for generations and were forcibly turned into rent-paying tenants or wage-earners in the new factories with their rights to organize and even to move restricted by laws of settlement, poor laws, combination laws, and more. In the American colonies and early republic, the system was similarly rigged through land grants and speculation (for and by railroads, for example), voting restrictions, tariffs, patents, and control of money and banking...."


JR said...


In other words, the twilight of feudalism and the dawn of capitalism did not find everyone poised at the starting line as equals—far from it. As the pro-market sociologist Franz Oppenheimer, who developed the conquest theory of the state, wrote in his book The State, it was not superior talent, ambition, thrift, or even luck that separated the property-holding minority from the propertyless proletarian majority—but legal plunder, to borrow Bastiat’s famous phrase.
Here is something Marx got right.
Indeed, Kevin Carson seconds Marx’s “eloquent passage”: “these new freedmen became sellers of themselves only after they had been robbed of all their own means of production, and of all the guarantees afforded by the old feudal arrangements. And the history of this, their expropriation, is written in the annals of mankind in letters of blood and fire.
This system of privilege and exploitation has had long-distorting effects that continue to afflict most people to this day, while benefiting the ruling elite; Carson calls it “the subsidy of history.” This is not to deny that living standards have generally risen in market-oriented mixed economies but rather to point out that living standards for average workers would be even higher—not to mention less debt-based—and wealth disparities less pronounced in a freed market.
The “free-market anti-capitalism” of left-libertarianism is no contradiction, nor is it a recent development. It permeated Tucker’s Liberty, and the identification of worker exploitation harked back at least to Thomas Hodgskin (1787-1869), a free-market radical who was one of the first to apply the term “capitalist” disparagingly to the beneficiaries of government favors bestowed on capital at the expense of labor. In the 19th and early 20th centuries, “socialism” did not exclusively mean collective or government ownership of the means or production but was an umbrella term for anyone who believed labor was cheated out of its natural product under historical capitalism.
Tucker sometimes called himself a socialist, but he denounced Marx as the representative of “the principle of authority which we live to combat.” He thought Proudhon the superior theorist and the real champion of freedom. “Marx would nationalize the productive and distributive forces; Proudhon would individualize and associate them.”...

Ash said...

For those interested, the final part (V) of my series on gold was published today at TAE:

The Future of Physical Gold, Part V - An Imperfect World in the End

d2thdr said...

Hi JR,

If you have not yet read this book, I would recommend it.

Downfall of Capitalism & Communism-Can Capitalism Be Saved? By Ravi Batra.

Its quite facinating.

costata said...


Excellent essay. Thank you for the link.


burningfiat said...

Hi JR,

Thanks for the link. On same subject, I like (and recommend) this documentary: Anarchism in America

Best regards,

Pete said...

@ FOFOA and Blondie

I appreciate your replies. Whilst both slightly different, both are valuable.

Perhaps people won't get the choice to have bubble-phobia. If gold is no longer treated as a commodity, how can it be a speculative investment? It won't be, and therefore can't become a bubble.

Thanks again for your responses.

radix46 said...

In the last few days, on mainstream UK TV, I have heard the Governor of the Bank of England talk about dodgy ETFs and potential massive loss of confidence resulting in a system collapse; I've heard the US debt rating going negative talked about; and I've heard gold talked about (not freegold, obviously) - all in perfectly rational and truthful (as far as I can tell) ways.

Crazy times, right there.

Oddly enough, though, I've heard very little talk of these current developments on here. I don't think I've seen one single discussion on how the events taking place in Greece might affect the system. Does no one think it's relevant to freegold, or is everyone just enjoying being a spectator?

FOFOA said...

Hi Radix46,

Sorry, here you go…

Regarding this:

The author of the blog has his own baggage he's dealing with, advocating convertibility and/or a gold standard. But Mundell never mentioned convertibility. Watch the video:

Not only that, but Mundell says gold in this role he's advocating is "not anyone's liability and cannot be printed." Paper gold doesn't measure up under that definition. So whatever Mundell is talking about doesn't include paper gold! That's a +1.

"Tied together, with gold being the intermediary" is kind of a sloppy way to describe Freegold, but it could work as a description. Assuming Mundell has something like this in mind, he's got the tough job of describing it to people that only know the old gold standard.

LOL @ the other guy "Oh no, there no way to devalue the currency in times of economic trouble! Oh no, we cannot hyperinflate! God save us!"

Isn't it funny how all these US-centric analysts are so used to the system whereby smaller countries around the globe periodically go poof in a hyperinflation and then the IMF comes in to save them? These same people that think the purpose of currencies is for small countries to "have a way to devalue (hyperinflate) in times of economic trouble" are the same ones that think it could never happen to the dollar.

Sometimes Mundell really seems to get it. Other times he just seems to be getting old. But I must say, in this interview he seemed to get it.


Regarding this:

FOA (10/10/01; 07:07:06MT - msg#119)
At the Trail Head parking lot

On most parts of this Trail, I could walk with my eyes closed; while in other areas I would need six maps and two GPSs units just to know north! Right now, I can tell ya what's most likely out there, but in those strange areas; not really sure?

Take this Euroland gold coin thing? My guess is we won't see this anytime soon. I suspect it will be something like a K-Rand, with no marked currency denomination, but different in that it will be a hybrid legal tender. If you look here in the US, gold coins are somewhat a currency as they stand. Just like IBM stock, real estate and most any other asset, we just have to sell it for currency first; pay our taxes and then use the money to buy something. The process only becomes illegal if you use the stock, land or gold to trade directly for something and don't pay your taxes.

Mr. Strauss pointed out that the current trend in motion is that all VAT taxes are being lifted or phased out on gold trading. Eventually, most of the world will have only some form of capital gains taxes on gold. This is fine and is bringing gold into focus as the one and only metal asset the official sector is trying to work with. But I think there is more to it than this.


FOFOA said...

As I said many times; Europe is looking to bring gold back into use as a very tradable asset. Perhaps "the most very tradable asset" but still outside the fiat money context. They want to keep the government's and socialist's hands off gold and its market function so it will serve everyone as a savings medium. But, they also want it to gain as a trading medium so the combination of the two will create immense demand.

To gain in the "use department" I suspect we will see some push to drop all gains taxes on gold used in official coin (Euroland) form. In place of that, there will be some form of excise tax charged on payments / trades done using these gold coins. Most likely, you will have a choice of paying completely in gold or Euros but not a combination of both. Probably, gold will be used for large purchases because gold will carry a very high price by then. And too, 1 gram coins will be the norm; being the size of our one ounce now, but with alloys. I doubt gold will ever be used in regular store / retail sales. In other words, I could go into my bank and use 50 Eurolands containing, say one ounce fine gold each, and pay off my $200,000 mortgage; minus some 15% excise tax on the deal? I could probably do the same thing with regular bullion, too, but would pay a somewhat higher gains tax rate; instead of the lower excise tax.

Anyway, this is all in the "for what it's worth area". Go ahead and take your hike,,,, I will be here giving the car a tune-up and changing the oil when you return. Then I want to talk some more about the words of Mr. Strauss (smile).



Email from a reader:

Yes, I can see how a new gold franc could set off a chain of events in the direction of Freegold. The Swiss definitely have a problem, as there is lots of upward pressure on their currency and not much of an escape valve. The SNB has lost a fortune trying to fight that trend, and it doesn't look like the pressure will abate anytime soon. What an elegant solution!

I live in Europe, and I am constantly impressed with how far ahead of the Anglo world is continental Europe's thinking on gold. As FOA anticipated, every EU member country has one or more gold coin(s) (equivalent to the American gold Eagle) which is completely tax free-- no VAT, no capital gains tax, nothing. Not the case for silver; gee I wonder why that might be.


From back in March:

Here's an interesting Freegold story. Hat tip Fauvi and my apologies because this has been sitting in my email spam folder for nine days. The article is dated Mar. 9, the day Fauvi sent it to me. But I guess it went to spam because the email was mostly in German.

Remember from Indicium that FOA wrote, "1 gram coins will be the norm; being the size of our one ounce now, but with alloys." At other times he also wrote about how gold is divisible to ANY size necessary. Well here we have three Swiss politicians proposing a constitutional amendment to make a new set of official Swiss gold francs down to the smallest size of.... wait for it.... 0.1 grams of gold!

And from the wording of the initiative it sounds like they would be meant to float in value with the price of gold, without a fiat face value. I get this from the use of the term "fixed gold content" and the later reference to the value of the coin relating to the "cost" of its gold.

It also appears to be a vessel designed to absorb "hot money inflows" directing them away from, and to prevent the unwanted appreciation of the fiat Swiss franc: "an attractive alternative to the Swiss franc as a safe haven…"


FOFOA said...

For reference, 0.1 gram of gold today would be $4.57 at spot. A Freegold valuation of such a coin would be in the ballpark of $175. Furthermore, the references to safe haven use and the attractiveness of Switzerland as a financial center tell me that the intended purpose is as a store of value more so than as a transactional currency. Also, they want it to be commercially (privately) minted and distributed through commercial banks, yet licensed, monitored and the gold content guaranteed by the Swiss government.

And as logic can reveal to even the most hard-headed among us, a monetary store of value need not have denominations as low as a five dollar bill; for those with only $5 are not in need of a monetary store of value! (I remember opening my first savings account. I recall the minimum starting balance was $100. And that was a long time ago!)

So I suppose one could be forgiven for running wild with theories as to the agenda behind the official proposition of what would surely be an overly-expensive minting at today's gold prices. Our 1/10th ounce coins (the size of a dime) are 3.1 grams. So if this coin were that same size it would need a special mix of one part gold, 30 parts something else. Of course this would be much more economically meaningful at $55,000 per ounce, $1,768 per gram, $176.80 per 0.1 gram (which is about what a 3.1 gram 1/10th ounce Eagle costs today)!

Translated by Google:

On Wednesday, the politicians came with a new campaign to the public. They call for the creation of a Swiss gold franc. The goal: New Swiss gold coin with a fixed gold content is strictly controlled licensing and tax-exempt issue to allow according to the wishes of the founders and small savers to invest their assets in gold and thereby safeguard against inflation. The whole thing is in the form of a constitutional amendment be enacted.

The press release also states that upon the gold franc also "an attractive alternative to the Swiss franc as a safe haven created, making the franc's appreciation should be held as a result of currency turmoil in international borders."

The Federal Constitution is supplemented as follows:

Continued at the link


FOFOA said...

Ah, here are some more thoughts on this from Costata:

"I think they do need to give these coins the status of a currency rather than the status of bullion. Do you see the psychology involved for generations who have never known gold as currency/money (their savings numeraire)?

It gives official sanction to the concept that gold is money again. It creates the opportunity for seigniorage. (That might be questionable on idealogical grounds but I think it would be an acceptable trade off.)

It also solves a major problem that has not been fully addressed. We need much smaller weights of gold in order for gold to function as a savings vehicle effectively under a Freegold-RPG regime. At present the only way to reach denominations as low as 0.1 gram per coin is to issue paper certificates or use a digital gold system like BullionVault.

I think that the choice must always be present to hold the gold in your physical possession as opposed to having it stored by a bank or other custodian. That is how the public can enforce discipline on the custodians.

From what little I have heard about this Swiss proposal I did not find any indication that fractional reserving of gold savings deposits was part of the plan.

Lastly you could view this as a very clever way for those who are aware of the Freegold-RPG plan to front run the transition with a high profit potential commercial venture. It could be sold to the politicians as a way to alleviate upward pressure on the Swiss Franc exchange rate.

The (private?) Mints who are geared up to produce these coins would have a first mover advantage in supplying the required 0.1 gram coins. A Mint that is not geared up to produce the smaller weights would have an enormous task to catch up with the Swiss Mints producing these coins. Consider, for example, the effect on the Perth Mint's sales if they are (as a result of a "Waterfall" transition) suddenly confronted with AU$25,000 per ounce gold and no buyers for the bulk of their product lines because the public simply cannot afford most of their product lines.

PS. As a favour we should send Bron a link to the information about this Swiss plan and give him a heads up that he may need a contingency plan to deal with this scenario. They are not thinking small enough in terms of their gram weighted gold fabricated product lines IMVHO. (Perhaps they think silver will provide the lower de facto "coin denominations" LOL. BTW this Swiss proposal shoots that idea down in flames.)"

radix46 said...

Thanks FOFOA,

I have heard plenty of people talking in a similar fashion to Mundell. Perhaps not in terms of such nuanced content, but in terms of unspecific ideas for 'what we have to do'.

Quite a few high profile people talk about gold, but there does not seem to be any serious consideration given to it.

Does this mean that RPG is unlikely to be implemented by choice, as it looks as though events could force some kind of disorderly transition quite soon?

Events such as the Greek people telling their parliament to stick it where the sun don't shine, or actually storm the place and do the sticking for them - events entirely out of the control of the people who may or may not be planning these sorts of transitions.

Does anyone see anything by the big players that have changed gears at all recently? Anything which might suggest RPG is imminent, given a heightening in tensions and rhetoric?

It seems that there needs to be some considerable infrastructure, changes in laws, minting of coins etc that needs to be in place for an orderly transition. I don't see this happening. Either the planners aren't worried about current events and plan for a transition some significant time down the road and are just crossing their fingers and hoping that a disorderly transition doesn't occur, or is there no plan?

What about the Chinese saying that they will buy European debt? This seems like a pretty big deal. Does it change timelines, or have any other seismic effects?

Texan said...

The Chinese purchases are symbolic only. They are trying to keep the euro well-bid (as they are pegged to usd) and keep the European consumer economy from imploding. Even the Chinese don't have enough cash to bailout Greece, Portugal, Spain, etc.

Only the ECB monetizing the bad debt can do it. We'll see if they ever get an official mandate to do that, since I understand they are currently well over their skis at the moment.

Radix, you are completely right IMO. No one wants to
move to a gold standard/RPG because the REAL Nash equilibrium is status quo.

Edwardo said...

"No one wants to move to a gold standard/RPG because the REAL Nash equilibrium is status quo."

The key word in the above sentence is wants. They may not want to, but gravity is an irresistible force. And with each passing day the realization of Freegold's gravitational "inevitability" grows, hence a new equilibrium will come about. The only questions are how and, how soon?

Diamond Jack said...

Thank you, FOFOA for sharing your treasures. It is a relief to know that your personal reading is or can be [redacted].

It [redacted] me to hear from Canada, a fellow prospector. Many reading this blog will think the same thing. There is more gold in more places than can be policed. Streams? Add every dry wash in the American Desert, and 100 years since the last gold rush.
For the fraction of the price of a bitcoin rig one can own a metal detector, dry washer, and sluice box and pull gold from the ground just about anywhere.
That said, I see real value in bitcoin. If people traded bitcoins for mining claims, both markets could flourish.

Two hours from where [redacted] lies a mine where 300,000 oz of au where extracted and sent to the us mint for coinage. Active and inactive claims line creeks for miles around. This is just one of thousands of areas with a history of gold extraction Claims are basically free, many have good stories. I'll take some bitcoins, happy to unload my claims; I know how to get more.

FOFOA said...

Hello Radix46,

You asked: "Does anyone see anything by the big players that have changed gears at all recently? Anything which might suggest RPG is imminent, given a heightening in tensions and rhetoric?

"What about the Chinese saying that they will buy European debt?"

Just a few off-the-cuff thoughts…

From my post above:

"Gold is (will be) the ultimate collateral… If you want to put your gold to work you just sell it and then put those dollars or euros to work."

And from Relativity: What is Physical Gold REALLY Worth?:

July 29, 2010 (FT) – Three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals that caused confusion in the gold market and left traders scratching their heads.

“…The Financial Times has learnt that the swaps… were initiated by the BIS…

“The client approached us with the idea of buying some gold with the option to sell it back,” said one European banker, referring to the BIS.

“…two central bank officials said some of the commercial banks also needed the US dollar funding and were keen to act as a counterparty with the BIS…

“In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in “swap operations” in the financial year to March 31.

The gold swaps were, in effect, a form of collateral… Gold is widely regarded as one of the safest assets, but has not been widely used as collateral in the past. Mr Caruana described the transactions as “loans with a guarantee”.

“Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee.

“George Milling-Stanley, managing director for government affairs at the industry-backed World Gold Council, said: “The gold swaps commercial banks carried out with the BIS demonstrate the effectiveness of gold as an asset class, because even in the depths of the worst liquidity crisis in living memory, institutions with access to gold were able to make use of it to generate dollar liquidity.

The issue also feeds right into the current debate **among Asian central banks** about the lack of assets suitable for use as **cross-border collateral**.”


FOFOA said...


“Last year, CME Group, the world’s largest derivatives exchange, allowed investors to use gold futures as collateral for some operations. Other institutions, such as central banks, had begun using and requesting gold as collateral in the past two years as perceptions of counterparty risk have risen, bankers and officials said.

The gold used in the swaps came mainly from investors’ deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called “allocated accounts”, which restrict the custodian banks’ ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper “unallocated accounts”, which give banks access to their bullion for their day-to-day operations.

“Officials said other commercial banks obtained the gold from the lending market, borrowing bullion from emerging countries’ central banks.”

May 25, 2011 (WSJ) — Investors are closer to being able to use gold as a trading security after a European parliamentary committee approved a proposal to allow clearing houses to accept gold as collateral, the World Gold Council said Wednesday.

The European Parliament's Committee on Economic and Monetary Affairs Tuesday agreed unanimously to allow clearing houses to accept gold…

June 7, 2011 (Bloomberg) — European Central Bank President Jean- Claude Trichet signalled for the first time he may support encouraging investors to buy new Greek bonds to replace maturing securities as officials seek to stem the nation’s debt crisis…

"Under the plan being discussed by European officials, investors may be given preferred status, higher coupon payments or collateral as incentives to roll over the holdings when they mature, two separate officials, who declined to be identified because the talks are in progress, said last week."

May 27- Bloomberg (Boris Groendahl): “Euro-area policy makers trying to avert a financial calamity may turn to a blueprint that arrested contagion in eastern Europe after Lehman Brothers Holdings Inc. collapsed. A plan, modeled on the Vienna Initiative of 2009, would involve leaning on creditors to roll over expiring bonds, buying time for Greece until its austerity program shows results or until a law takes effect in 2013 permitting sovereign-debt writedowns… ‘It’s burden sharing without restructuring,’ said Mark Wall, Deutsche Bank AG’s… chief euro-area economist. ‘You’re not changing the terms of outstanding bonds, you’re not lengthening their maturities, you’re not imposing haircuts on them. The bonds will mature but new bonds will be issued. What you’re asking the creditors to do is to participate in those new issues,’ he said. Such a proposal may bridge differences among European leaders over allowing a Greek debt restructuring…”


FOFOA said...


Costata (via email): "Under this change in EU law gold will be the foundation for the public exchanges that the EU is intent on moving the OTC and shadow banking dark pools back to. A trader, market maker etc will still be able to post collateral in Euro as well as gold.

"I think this could be a further step in deploying the gold. Consider this quote and ask yourself if Wim Duisenburg's "gold guy" is telling the truth when he says this:

"If we restructure Greek debt, that means Greece defaults," said Christian Noyer, governor of the Banque de France and a member of the European Central Bank's governing council, to journalists in Paris on Tuesday, describing the idea of Greek restructuring as a "horror scenario".

FOA (2/26/2000; 11:13:56MT - msg#7)

"It seems people saw something else that would make the Euro unique. Paid up assets also stand behind circulating money. Indeed, if someone owns a $100,000 dollar piece of land , has a good producing job and borrowed $50,000 against his land,,,,,, the world is likely to circulate that debt note as a fiat land backed currency. But, if his gold (the land) is worth $1 million in a free physical market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,, and his other debts are relatively low ,,,,,, the same note would circulate just as effectively if the $50,000 was borrowed against his name alone."


Pete said...

If countries manufacture alloy coins that say they contain 0.1 grams of gold - won't they be easy to counterfeit?

I guess we could also get counterfeit pure 1oz coins, by using tungsten rounds and gold-plating them. But I would think that technology will prevail there.

With an alloy I would think it is hard to determine if the gold is actually in the coin or not.

Counterfeiting requires a large profit margin to offset the risk factor (I assume... never done it nor intend to). The more value gold coins have, the more prone to counterfeiting they will become.

This is one reason I stick with only very recognisable and verifiable coins.

My own answer to my own ponderings above would be that technology will catch up. But will it ever be good enough for 0.1 grams?

Pete said...

(and why do we need 0.1 grams anyway... who needs to save $175. Do the same as the ETFs - when you get to a large enough holding, then exchange it. What's 1/20th of $55K?)

FOFOA said...

Hi Pete,

I've got a couple of these. They are tiny, about half the size of a dime. Smallest pieces I've got. Their gold weight is .0482 ounces, about 1.5 g. Present melt value about $72. (I paid $38 each back in Oct. 2008 when spot was $721/oz.)

I agree, we don't really need a "savings par excellence" for such small amounts, especially when fiat works so well in the short run. And, of course, .1 g coins are not very practical right now, at today's prices, which makes you wonder why they even mentioned them. Eh? And lots of things can be counterfeited, even the Mona Lisa! Certainly dollars are counterfeited. I guess that's why "the tribe" responds so harshly when someone tries to profit from passing off counterfeits of something that is important to tribal life as the real deal. You know, making the counterfeit isn't what's bad. It is passing it off as the real thing that really upsets the tribe.

Seems like it would be high risk, low reward to bother with dime-sized coins in a Freegold world. If there's one things governments do pretty well, it's mint coins! Lotsa practice. They've been doing that for a couple thousand years!

I wonder if Costata is getting tired of me sharing his private emails with all of you yet. Oh well, I'm sure he'll let me know. I can't help it if he writes great, Thoughtful emails. ;) Anyway, here's part of his latest from today:

"…An easy to maintain, orderly progression in the price of gold that gradually delivers the message to EU savers that "gold is the best place to store your savings". As you know from our earlier discussions I think at some point the public will get the message that gold is the new RE "that never goes down". Viewed in this light those 0.1 gram gold coins would be today's "piggy bank" savings accounts for kids.

Bear in mind also that these coins would be very safe to hold in your own possession. Anyone who sought to profit from stealing these forms of gold would very rapidly draw attention to themselves due to the volume they would have to steal and onsell.

I think that this gold Swiss Franc proposal is a far more important step in the Euro Freegold-RPG strategy than it appears at first glance. I would love to know who owns those Swiss refineries and the Mints. (Bear in mind that the SNB is privately owned.)"

Thanks, Costata.


FOFOA said...

Hello Diamond Jack,

Thanks! I had fun playing with your redactions. Here are my final guesses…

1. "bought for a song"
2. "really aroused"
3. "I was first with a man"



Blondie said...

WGC "Gold as a source of collateral" report May 2011 PDF click here

Blondie said...

"BIS and Riksbank’s gold swaps

For a large reserve manager, swaps can provide a source of income or yield on gold when lease rates are positive or conversely they can also provide a cheaper method of generating liquidity in times of severe financial stress – without actually selling gold holdings.

During the past several years, financial conditions tightened significantly at various stages of the recession, making raising dollar liquidity very challenging. Following the bankruptcy of Lehman Brothers in September of 2008, many commercial banks found it extremely difficult to raise dollars, even against assets previously regarded as very liquid. In order to be able to provide liquidity to the Scandinavian banking system, the Swedish Riksbank utilised its gold reserves by swapping some of its gold to obtain dollar liquidity before it was able to gain access to the US dollar swap facilities with the Federal Reserve. This illustrates another benefit for reserve managers of holding gold in their external portfolios. As many other assets would not be accepted as collateral for US dollars, gold’s safe haven qualities and counter-cyclical behaviour ensured its liquidity in a time of crisis.

Another example of gold being used to generate liquidity occurred in 2010 when the European fiscal crisis first began to unfold. In March of 2010, the Bank for International Settlements (BIS) noted in its annual report that the Bank’s gold reserves had increased significantly due to swap transactions with commercial banks. The BIS’s gold holdings had increased over 380 tonnes from 118.6 tonnes in November of 2009 to 500.8 tonnes in October of 2010.

While the BIS has been reticent about the exact nature of these swaps, it has become clear that in a reversal of the more typical gold swap, European commercial banks in need of liquidity were swapping gold with the BIS in order to raise cash during the critical moments of the European fiscal crisis. Cash LIBOR rates at that time for European institutions were significantly higher than borrowing with gold as collateral. Furthermore as many European commercial banks struggled to obtain funding for their large European sovereign debt holdings, it is easy to understand why the BIS would only lend to these institutions on collateral they considered of a very high quality that could not be impacted by further credit downgrades.

Thus in this situation, as it has in many times in the past, gold proved to be more high quality than sovereign debt. In this BIS example commercial banks mobilised the equivalent of almost 30 tonnes per month to the BIS for their funding needs, mostly drawn from unallocated holdings on their books. Interestingly, market commentators only commented on this transaction well after it was completed and published in the BIS annual report – further illustrating that central banks can deal in size with no apparent market disruption and complete discretion."

-WGC, April 2011

Blondie said...

"...the investable gold market is larger than all sovereign debt markets, apart from the United States and Japan...

... a central bank reserve manager can transact in size in the gold market without disrupting the market and with complete discretion...

...unlike sovereign debt markets, gold’s lack of credit risk allows for the gold market to get larger without any negative implications...

... as sovereign debt markets grow, the increased credit risk dilutes the quality of the existing stock of debt...

...while gold no longer plays an official role in the global monetary and financial system, it remains one of the most high quality liquid assets in the marketplace.

There can be no doubt that gold will continue to play an important role on the balance sheets of central banks, governments and financial institutions in the years to come.

Gold is the bond that never matures."

-WGC April 2011

Jeff said...

Santorini looks lovely. I would put in a bid but I'm sure Goldman Sachs or China will outbid me.

Commercial banks swap customer gold to BIS. Who holds gold at commercial banks? Not shrimps. Small giants, investment funds. They hold golden tickets. And when one of those loans inevitably defaults? Small giant runs out the bank door screaming 'they sold our gold!' Cash settlement, run to freegold?

raptor said...

Whatever anyone says I think the current spur of the fiasco and information around bitcoin will evolve... I would be really happy if the system comes to the radar of companies like Google and Amazon..
So that in the future they provide some system based on the ideas of bitcoin or even on bitcoin itself.
Anything that competes with government at the end will beneficial to the world as a whole.

Yes alot of similar system will fail, but lets hope something good comes at the end.

Also I think freegold will shine even better in dynamic non centralized monetary systems like bitcoin.
Many of the fears if progress in this direction will disappear, like the one of forced conversion by law of the hoarded gold, it will force many people to ask much deeper questions what money really is etc..

d2thdr said...

Raptor said - Also I think freegold will shine even better in dynamic non centralized monetary systems like bitcoin.

You do not need a centralised monetary system in freegold, thats the beauty of freegold.

Judging from your have not yet grasped what freegold really is.

FOFOA said...

Hello everyone,

Wow, comments are pretty quiet what with Troll summer vacation in full swing, eh? I feel bad for the few of you that come back here regularly to see if there are any new comments. So for you few, I give you this. I have posted a few comments there that should give you at least a little of what you're looking for.


Panelproli said...

The amount of gold the BIS increased its holding (Blondie mentioned) is similar to the amout of Portogal's gold.

I made thoughts in the meantime, who is the main "beneficiary" of the Greek crisis. And came to the idea that it is Germany: due to the weaker euro its economy speeds up quite.

raptor said...

The Great "Depression"

raptor said...

When did I said we need centralized monetary system for Freegold to work ? Read again the thing you quoted.
I said it will be even easier in more decentralized system, than what we have today.

As for what FreeGold is ! It is pretty simple no need of economic degree.
Once you know what money is and how gold balance world trade flows of money the rest is simple logic.
No need even of math degree ;)

As for what would speed up the countdown :
No tax on gold, plus real physical market. The rest will take care of itself.
No need for political decisions and hard-ass gold standards.

raptor said...

Question: Regarding the onset of hyperinflation: Do you expect that the initial loss of confidence will come from a foreign government? Or from the private sector?

FOFOA: I think it will come from a panic in the private sector, because even though foreign governments have already lost confidence, they will never take overt action to destroy the system. That’s the kind of thing that starts wars.

What about high inflation ?
I always thought that the coming first step "high-inflation" before the end game, will come from the constant repudiation of the $ all over the world, but not by the domestic flow of money. The Fed has too tight control locally to influence the USA banks to continue to hold big reserves.

S said...


You have repeatedly pointed to the organic nature of F/G, but there is still a political bridge to cross (born of necessity or choas or both). What kind of historical precedent have you thought about regarding the political transition as opposed to the organic monetary front views? Geithner’s backing of Lagarde shows this morning that the $IMF is clearly not going capitulate in any form or fashion (Greek theater and all). There were rumors around back in 2010 of the French meeting with the Russians and not so secretly discussing a post dollar world. Were the French comments a play for SDR as a “transitory” solution – word seems appropriate here? Or were they merely a faint on the phase transition to savers? What is obvious is that there is no political consensus (that usually means "kinetics" – to be distinguished from lets say F/G benign neglect – which may have something to do with the various missile launches lately (like the Russia Bulava yest’d).

Polly Metallic said...


Your quote below pretty much sums it up for me:

“Wow, comments are pretty quiet what with Troll summer vacation in full swing, eh? I feel bad for the few of you that come back here regularly to see if there are any new comments. So for you few, I give you this. I have posted a few comments there that should give you at least a little of what you're looking for.”

Thanks for including the link to

I found your commentary there interesting, and definitely look forward to further posts on your own blog. I don’t understand why people who do not share your convictions about Freegold want to frequent your blog and post opposing views. It makes more sense for them to simply move along to a site where people share views similar to their own. When I see certain poster’s names, I simply scroll past their comments.

I liked what you said, “Most people cannot conceptualize above their own pay grade. This is where all the foil theories originate and where they flourish. I, on the other hand, try to think like a Giant, to conceptualize like a Central Banker.”

I have nowhere near your level of understanding in economics, nevertheless, I have always tried to think in terms of “if I had vast wealth to preserve, what courses of action would I take.” Then I try to look at world economic events with that view in mind. When I discovered the writings of Another and FOA they had an indefinable ring of truth, even though the concepts were sometimes challenging.

I see your point that Old Money Wealth can’t be completely demonized for protecting their own interests: “unlike the foil crowd, I don't view the "old money wealthy" as the enemy or as evil. I don't view banker bonuses as part of the disease, but as a mere symptom of the disease and evidence of the end of a currency's natural timeline (a historically recurring event).”

It often does appear, however, that they have amassed much of their wealth over the centuries by less than noble means. And to this day, it seems to me that the various bubbles that have been created were done so as a means of creating false “wealth” such as the craze or the housing bubble,” so that this phantom wealth could be turned into real dollars and cashed out of the system, leaving the unwashed masses poorer than before. If these bubbles, and the excessive banker bonuses based on the unsustainable bubble schemes they created, “are only a symptom of the disease,” do you mean they are not to be despised for the destruction they created? Do you mean to say that because fiat money systems are a flawed and doomed system, the bankers who created the whole CDO mess and then cashed out their profits and let the mass of toxic assets implode are not to blame? If that is your view, then this is one point on which I cannot agree with you.

Thank you for your wonderful blogs and for presenting so much information in a clear manner . Your work has helped me to build on the foundation of truths I gained from Another and FOA, and have expanded my understanding of gold, fiat currencies and global economics.

poopyjim said...

This point has been made before - but what about the prospect of newer virtual currencies popping up that compete with bitcoins?

Let's say I make a new virtual currency with the same (or better) technology, let's call it a "shitcoin" - what is to stop people from using my shitcoins instead of your bitcoins? Nothing. Why would the populace continue to lick the boots of the early bitcoin adopters when they have the shitcoin alternative?

The aggregate supply of all "cryptographic virtual currencies" is potentially infinite because there can spring up an infinite number of competitors whose currencies are equal to bitcoin in terms of intrinsic value. Therefore, Bitcoin is merely a BRAND whose success requires it to be marketed. With this in mind it is little wonder that large holders of bitcoins are such weak hands. If I had any I'd sell them immediately.

raptor said...

You are right, there is no problem of anyone popping up with new virtual currency like bitcoin or better.
And as you said I think at least in the beginning it will be a BRAND issue.

That is why I think a virtual currency associated with the reputable company and big online presence will win over a following.

With that in mind I think, Google, Amazon, Ebay/PPal ... even Walmart could have some success.
The reason is they have payment systems and something valuable to sell.

If virtual currency become big I think the gov may try to squash it, tax it, whatever ...

I just hope now that the jini is out of the bottle, someone will pick it up and make it viable alternative even if it works in vertical markets.

Aquilus said...

Since it's slow, and we're still mentioning bitcoins:

radix46 said...

I'm waiting to be approved for an account over at the forum that you linked to, FOFOA, so my reply has mushroomed somewhat with revisions and additions...

I'm glad that you manage to plough ahead despite the retarding headwinds.

raptor said...

Jim talks of Europe moving towards a gold anchored system.. I've sent them and email that they already are doing this.
With link to this page :

JR said...

Hi S,

I didn't see any reference to the euro - are you familiar with Reference Point Gold?(

JR said...

Hi Polly Mettalic,

Here are a couple of thoughts. First, the proximate cause is our enabling of this process:

FOFOA comment

I dislike debt as much as the next guy. In fact, I think that equity engagements will ultimately be more appealing in a balanced and stable economy with multiple viable alternatives for capital to park in. I am certainly no fan of the Fed and I don't like what banking has grown into over the last 30 years.

But debt itself is not the cause of our problems today. Today we have a situation where the vast majority of excess production value (excess capital) is enabling massive amounts of global malinvestment through new debt creation. That has peaked and is now contracting. But the problem is not the debt itself. The problem is the enabling effect of excess capital not having a viable alternative that floats against the currency. The problem is the lack of the adjustment mechanism of Freegold. There is no viable counterbalance against uncontrolled debt growth today. So we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system.

It is easy to blame this on debt as a principle, but unless you don't mind being wrong, there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels. "Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.

We demanded easy money and its enabling of debt growth


JR said...


But there is a solution to this "root" or "proximate" cause - stop enabling the debt expansion by saving in something other than the currency. The bankers' primary "task" is to enable the easy money/debt system by pulling in real savings to further support the expansion of credit. Blaming bankers is like blaming gravity for the plane crash - they are what they are. We need not have a fondness or affinity for bankers to see the causal reality and recognize the self-limiting nature of such misplaced blame.


"So what is gold's utility? Gold's utility is that for thousands of years it has held its value relatively well....

This is why FOFOA talks about "meritocracy" - freegold is a saving system outside of the G controlled currency that allows one to protect wealth from the hungry collective and exploitative class. An asset whose "hoarding" does not hurt the real economy. In Freegold, you basically have to earn your keep, as it becomes harder to siphon the fruits of the hard work of others. Freegold is all about a store of value that actually stores value.

...its not the revaluation or capital gain through the transition that is the primary benefit, but rather the greater meritocracy that ensues after Freegold emerges. Its not about poor people buying gold and then becoming rich while the evil paper wealth holders become poor, its about what happens after the revaluation (what is on the other side of the waterfall)."

Gold. Get you some. --- Aristotle

Crack said...

"its about what happens after the revaluation (what is on the other side of the waterfall)."

Theres usually a wall of trolls/haterz gettin beaten back an this suppozly stops you "movin up a level".

All quiet on the troll front. Jus sayin.

DP said...

Dollar vs Gold : the real Cold War

Crack said...

make ya damn minds up

is $ vs gold, or $ vs euro?

and whats so good about "after Freegold" anyways?

JR said...

What's so bad about now?

Some think a "problem is the enabling effect of excess capital not having a viable alternative that floats against the currency." They see the lack of a "viable counterbalance against uncontrolled debt growth today" as an issue, as "we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system."

If these are problems now, would it be "good" if "after Freegold" these issues are resolved?

Is a move towards a greater "meritocracy" desirable - is "a saving system outside of the G controlled currency that allows one to protect wealth from the hungry collective and exploitative class" a good thing?

Cheers, J.R.

DP said...

I say "yes" and add "why not front-run it; you'd be stupid not to once you can quite clearly see where we're going!".

The more "outside of the G controlled currency" I can get the bulk of my savings, the better I like it.

I'm not averse to the hungry collective taking a small slice of my income as it passes into my hands, given that I do benefit from being a part of The Tribe and its collective efforts, and I'm not so heartless that I would favour a Darwinian solution to the perennial problems of poverty and ill fortune. There but for the grace of god go I and all that.

However, perpetually taking slices out of my savings through inflation... sorry, that deal is officially over.

mr pinnion said...

ANDREW MAGUIRE shows his face at last.
Rawdog will be pleased lol.
The links on the 24 hour gold site.


JR said...

Don't conflate the figurative "hungry collective" with literally "hungry" people. Think like them.


Perhaps organizing the tribe under peaceful, voluntary and cooperative fashion is an improvement on the current prison of poverty and ill fortune beset all around us. Got Community, aka the opposite of "have you ever tried to help an injured person apply for SSDI/SSI"?

Who knows? But either way, its hard to know if you don't know, ya know? Oh the baggage we bear:

Moloch the incomprehensible prison!

JR said...

WSJ - Chinese Largesse Supports Euro, But For How Long?

"--Market wants to sell euro, but fights deep China pockets

--Approximately 1/3 of China flows seen buying euros

--May spend more than half a trillion euros on European "good will"

NEW YORK (Dow Jones)--China's deep pockets are momentarily keeping the euro supported....

For months, whispers of "Asian official buying" have permeated markets when the euro fell below certain levels. That talk has kept euro/dollar hemmed into a tight seven-cent range since late May, even as fears of a Greek default make traders disinclined to hold the single currency.

China, the world's biggest holder of foreign-exchange reserves, has pledged financial support to the distressed euro-zone periphery while touting its economic links to Europe.....

However, investors appear reluctant to go against China's vast economic resources.

China holds more than $3 trillion in foreign-exchange reserves, with an estimated 60% of those in dollars. Its strategy toward the beleaguered euro zone helps it accomplish two goals: expanding its global reach and satisfying the need to diversify its vast reserves.

"The market is inclined to sell the euro on rallies [whereas] China wants to buy it on dips," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York...

Yet analysts point to official data showing that Chinese U.S. Treasurys holdings have fallen by at least $300 billion recently. Analysis of flows by Bank of America-Merrill Lynch shows that monetary authorities have been net sellers of dollars over the past four weeks, translating them into euros.

By looking at the rate of China's foreign-asset accumulation, Woolfolk estimates that authorities sell about $2 billion per trading session, with roughly a third converted into euros...."

mortymer said...

@Ash: interesting...

DP said...

JR: Moloch the incomprehensible prison!

True that. Loved the link too - excellent! :->

Much like Freegold being a compromise between two extremes, I personally believe we need to somehow all agree upon an acceptable balance in social arrangements too. Fat chance, eh... :-\

My personal optimal "balance point" is clearly a little closer to the mainstream than yours, but at the same time most people I ever meet consider me to be almost a borderline heartless rightwing fascist! You certainly couldn't ever please everybody when it comes to this... :-)

Still, at least with Freegold you get a way to vote with your wallet. The State can only redistribute what you allow it to retain control over. Enough is enough, but not a penny more.

Edwardo said...


Calling oneself a proponent of "non bullshit Marxism" may be the biggest steaming pile of arrogant, self promoting, bullshit of all.

So, yes, from that standpoint, and perhaps several others, I think a certain resident troll sounds like a perfect fit.

JR said...

You don't understand what I think or believe.

I personally believe we need to somehow all agree upon an acceptable balance in social arrangements too

Who disagrees? Market anarchy is an end goal *way* down the road, and most everybody doesn't even know what that would entail, as the idea has lotsa baggage. Its something society evolves toward, but it takes a lot of education and growth. And of course it has to be acceptable, that's the point of favoring voluntary, consensual interactions over forced ones.

The bitcoin fools and other activists don't understand this.
I'm here because I do. I'm not OMG freegold is evil becuase there are still states, I'm not OMG we gotta end fiat money or stop welfare or SSDI or whatever. I'm not advocating for a failed state, but for the continuation of a social and cultural evolution that proceeds at glacier like pace. I'm driven by economics, not politics or morality.

That my perspective might conceive of a different, far off ending is of no practical material consequence to any discussions we have about the now or the foreseeable near future.

Freegold is a relative libertarian concept, in that its all about the end of our money system's massive enabling of the state's power:

"Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.

This is a process, and I'm well aware we have a long way to go before market anarchism is even a viable discussion.

Freegold is not market anarchy or the end of the state. For me its an inevitable step on a long journey.

So for all intents and purposes, there is no material differences between our perspectives. We think freegold is a positive social evolution. What happens way down the road as a result of our growth through Freegold experience is a long way of, and is currently little more than theoretical musings.

So don't color what I write with "anarchy," just pretend you don't even know about that - it doesn't matter in the here and now, and it really doesn't make me any different than most everybody else here.

Cheers, J.R.

DP said...

JR: So for all intents and purposes, there is no material differences between our perspectives. We think freegold is a positive social evolution. What happens way down the road as a result of our growth through Freegold experience is a long way of, and is currently little more than theoretical musings.

Indeed. But it's perhaps quite an interesting not-unrelated-to-Freegold read for visitors all the same, particularly in a surprisingly long fallow period in the comments, eh? :-)

Cheers backatcha! ;-)

DP said...

As Crack said a few comments ago, a lot of the time some of us complain about the inability to "move the conversation up a level", but right now there is nothing stopping us but ourselves.

I'd say the most interesting discussions we could be having are the ones where "its about what happens after the revaluation (what is on the other side of the waterfall)".

You seem reticent to discuss your way-off views of the world, JR, which is a real shame IMO because I, really, am for one interested by them. I can definitely see us getting much closer to that vision ultimately, than to the opposite side of the pendulum's arc.

Still, if anyone else has an ice-breaker to nudge the conversation in a different Freegold-related direction they have been waiting to see discussed ... please, don't be shy now? There may never be a better opportunity than this! :-)

mortymer said...

Edwardo: I found some parts interesting, e.g.:

"...Roemer was led to the conclusion that exploitation and class were thus generated not in the sphere of production but of market exchange..."

SteveR said...

Urgent press release from Mt Gox:

Edwardo said...

Hi Mortymer,

"...Roemer was led to the conclusion that exploitation and class were thus generated not in the sphere of production but of market exchange..."

Perhaps I misconstrue what is meant by "market exchange" but I think "exploitation" has likely occurred in both the production and market exchange spheres. However, as western economies evolved, - and I use the term evolved advisedly - of late into primarily financial service operations, plundering hoi polloi was best done via market exchange.

One has to fit the crime to the time don't you know.

S said...


I read the FOFOA piece re yuour linked and given it due consideration. In the time since you have articulated your Rothbardian perspective and the glacial pace at which you see it evolving. Given history's track record a swinging pendulum - which FOFOA made clear in the savers vs. debtors post - why would you ever expect an evolution to something like anarcho-capitalism? Outside of barter is there a near historical example where organic economic evolution supercedes political will (and with it conflict)?

Ash said...


I obviously think the ideas of the "September Group" are insightful and their approach is better than traditional Marxists who cling to LTV, BUT I don't like the emphasis/reliance on game theory one bit.

I'd also have to agree with edwardo that class dynamics originate in the sphere of production in so far as the market for labor is considered a fundamental part of that sphere (and that's without relying on LTV).

Also, edwardo's argument that "no bs marxism" is actually bs is...deep.

Ash said...

Re: game theory

Along with classical and keynesian economics, its one of the most misapplied and intentionally abused models of human behavior out there.

I would expand on that, but I'm on my phone now and its a pain to type on it.

JR said...

Thomas Paine, "The Rights of Man" (1792):

Great part of that order which reigns among mankind is not the effect of government. It has its origin in the principles of society and the natural constitution of man. It existed prior to government, and would exist if the formality of government was abolished. The mutual dependence and reciprocal interest which man has upon man, and all the parts of civilised community upon each other, create that great chain of connection which holds it together. The landholder, the farmer, the manufacturer, the merchant, the tradesman, and every occupation, prospers by the aid which each receives from the other, and from the whole. Common interest regulates their concerns, and forms their law; and the laws which common usage ordains, have a greater influence than the laws of government. In fine, society performs for itself almost everything which is ascribed to government.


Think about the implications of what FOFOA wrote in The Waterfall Effect in terms of Paine's idea - do you think what is coming is gonna make people more or less aware of the concept Paine presents?

While I view Robert Prechter as extremely bearish, I must say that I agree with him to a certain extent. The extent at which I do not agree with him is the steady state of the dollar. Prechter views the world through his Elliot Wave cycle theory, which is not unlike Martin Armstrong. But the problem is that the waves he measures are against the backdrop of a steady state dollar.

Like Prechter, I expect all aspects of the economy will continue downward to depths below that of the great depression. But during the great depression, we did not have Ben Bernanke and we did not have a purely symbolic currency as a measuring stick. We had a gold-backed dollar.

Think about this for a minute. The average retiree on Social Security receives about $1,100 per month, or $13,000 per year. This is a dollar denominated promise. If the crash from top to bottom is 90% or more as Prechter predicts, this would give each and every Social Security recipient the equivalent purchasing power of $130,000 per year when purchasing real estate, the stock market or even commodities. Basically everything.

And this will be true not only for Social Security, but for anyone on the receiving end of a dollar denominated promise, including all pensioners, anyone with a tenured job, like teachers and government workers, and including everyone in Congress. Virtually everyone with an income or cash savings will see their purchasing power rise ten-fold!

The problem with this view is that the real economy right now cannot even afford to deliver real economic goods at TODAY'S dollar purchasing power, let alone another 800% rise in purchasing power, with Ben printing new ones the whole way there.

So Bob and I both see a waterfall approaching, but how can we reconcile our seemingly opposite views on deflation?

Currency is the key!


This sorta gets a Hayek’s idea of the illusion of constructivist rationalism - RL has commented:

"Order is one of the cues whereby we recognise the presence of intention, and so we are easily led to the assumption that conscious purpose is required wherever we find order. (This is the same dynamic that drives creationism.) The problem with invisible hands is that they are, well, invisible."

Perhaps the demise of the $IMFS will bring a little opacity.

Cheers, J.R.

Joel said...

No BS Marxism is an oxymoron.

Polly Metallic said...


Thank you for your lengthy response to my comments about today's corruption in the financial markets. I certainly understand your point that our flawed debt-based system encourages malinvestment, and provides too many opportunities for greed and abuse. Nevertheless, I come away from your comments thinking that your view is a bit too much like saying that if I invite you to my house when I'm away, and I leave money and valuables lying about in plain view, then I am to blame if you are unable to overcome the urge to walk off with my valuables.

Ash said...

The greek ppl are discovering the power held by coercive institutions in a "democratic" and "sovereign" nation. They won't get their pensions... Americans won't get their ss benefits or pensions either. Simple as that. Funny thing about promises is that they are easily made and even more easily broken...

DP said...

They will get their nominal promises, they will just be unreal.

Ash said...

I dunno, dp, minnesota just shut down as they are preparing to lay off thousands of public employees... They even closed the minneapolis zoo! That's thousands more animals out of a job, joining the reserve army of the unemployed.

We are all just zoo animals, after all, existing for the benefit of zoo owners. Zoo animals don't get benefits, nominal or otherwise. They give us more and more food stamps, worth less and less food (bc the dollar promise is going down, not up).

Polly Metallic said...


Ah, I just popped over to "the other site," and read your comments in response to my prior post. As I am not inclined to start posting there as well, I will continue to post here.

Naturally, I am a bit wounded by your analysis of my views, but I am interested in your opinions on the matter, and I appreciate hearing your reasoning.

As a review appraiser who analyzed thousands of appraisals after the loans were closed and the mortgages were being bundled and resold on the secondary market, I had an intimate view of the housing debacle as it unfolded. Government policies and programs encouraging homeownership to people who could often not afford the loan products. That was part of the problem. Banks were pressuring appraisers to approve inflated sales prices. I know instances involving both threats and bribery. Loan officers were pressured to write ever more and riskier loans so that the banks could show increasing earnings and stay ahead of competitor banks. Banks and mortgage companies invented crazier and crazier loan products as the years went on. I know you are familiar with all this. Two or three years before the housing market crashed, virtually every appraiser I spoke with said things would end badly. We laughed when Greenspan and other experts said with a straight face that they couldn't see the bubble until after it had burst. We all saw it. I rejected hundreds of appraisals for over-valuation and fraud. Still, the loan pools later imploded partly due to unsustainable real estate prices and partly because buyers got into adjustable rate and negative amortization loans that they didn't fully understand. Yes, I blame the buyers to a large degree. Many foolishly used their homes as an ATM. Some people should have known better. Maybe most. But there are people with little financial education that didn't understand how much their payments would go up when they signed up for some of the more complicated ARMs, and "financial experts" told the public that real estate values hsitorically only go up, lol!

FOFOA, my comment was: "Do you mean to say that because fiat money systems are a flawed and doomed system, the bankers… are not to blame?" and you responded, "Yes, that's what I'm saying. What made the system flawed and doomed is clearly stated in FOFOA's Dilemma. It is a systemic problem with historic roots."

I completely agree it is a systemic problem, but people can still make the choice to conduct business with ethics. When the choice is to make money knowing that it will destroy others financially, I don't see how that can be shrugged off. I come back to the thought of Goldman Sachs putting together MBS as investments for pension funds and then using derivitives to bet against the very investments they packaged and sold to their clients. I can't justify that under any circumstances, and I really can't justify banks creating and selling exotic loan products to people, knowing that a large percentage of the customers would default, but doing it anyway to earn their loan fees. The "system" made all this fraud and corruption so very easy and tempting, but, as I said to JR it seems much like inviting you to my home when I am away, and leaving money and valuables in plain sight, and then saying it is my fault if you steal my valuables. Sure, it might be foolish on my part to make it so easy for you to rob me, but that doesn't change the fact that you willingly engaged in a criminal act.

DP said...

On a hard money standard, you're right. But the dollar is not a hard money standard. So how much longer before the voters squeal for momma to "do something" and the pols all cave, raise the debt limit ("Oh! the shock of it! :-O"), let the currency take the strain (again)?

The Democrats would have already done this of course, long ago, while the Republicans fool themselves they might not. Why the wait and the show of pretence? [ed: to prove a point prior to all that finger-wagging to come later, perhaps..? :) ]

Great political system, this democracy farce. :-\

JR said...

Hi Polly Mettalic,

I come away from your comments thinking that your view is a bit too much like saying that if I invite you to my house when I'm away, and I leave money and valuables lying about in plain view, then I am to blame if you are unable to overcome the urge to walk off with my valuables.

I can't help how you choose to view what you read, but I can infer from your misplaced analogy you aren't trying very hard.

Cheers, J.R.

P.S. - Did you see FOFOA responded to your comment!

JR said...

From FOFOA's The Return To Hard Money:

"...Try thinking in terms of the principles and concepts I will present, and then you can apply that view to both my conclusions as well as your own established beliefs. This is the proper way to take in a new view, and then you can decide to either accept or reject it, but at least you will have seen it.

I do believe that we are in the process of returning to honest money. I believe this transition is necessary, natural and inevitable (unstoppable). And that last part is why I sit back as an observer, rather than getting all worked up as an activist. To my way of thinking, all you can do now is take action to preserve your own wealth as we roll onward into this brave new world ..."

Check out that brave new world. Then maybe explore The Century of Self - If you have time and can be a bit of an "adventurous intellectual masochist," you can watch the 4 part series on youtube. Here is a link to
The Century of the Self - 1 of 4 - Happiness Machines.

Cheers, J.R.

DP said...

@JR, thanks for the Thomas Paine passage. ;-)

" [...] It existed prior to government, and would exist if the formality of government was abolished. [...]"

And we'd have got away with it too, if it weren't for that pesky Moloch the incomprehensible prison!

As you say, a long way down the road, quite possibly. I can't really foresee 0% of current level of government though, but something like 1%-5%... yeah, totally.

Polly Metallic said...


Yes, a few minutes ago I visited the other site and noticed that he had dissected my comments. Perhaps I need to read your comments and his several times, as perhaps I am too stupid to follow what you are both saying, but it seems you are saying that in a flawed financial system, people are not to blame for not conducting themselves in an ethical manner. Maybe I am making this too simplistic, distilling down your views, as you state that I am using a misplaced analogy in responding to you.
My comment to FOFOA was: "Do you mean to say that because fiat money systems are a flawed and doomed system, the bankers… are not to blame?" To which he replies: “Yes, that's what I'm saying. What made the system flawed and doomed is clearly stated in FOFOA's Dilemma. It is a systemic problem with historic roots. The bankers are not to blame for the flaw.”
IMO, The bankers may not be to blame for the flaw, but that does not absolve them from ethical behavior. I think of Goldman Sachs creating MBSs that they say themselves are a “piece of crap” and then selling that product to pension funds etc, then with derivitives betting against the product they just sold to their client to make further profits. I think it’s a bit of a stretch to say that GS isn’t to blame for their behavior. They are purposely creating profits on a financial product that they expect to implode.

DP said...

They are purposely creating profits on a financial product that they expect to implode.

True. If they would just take the gun from the head of potential buyers, the system would be a peach.

Polly Metallic said...


Believe me, I am typically a proponent of personal responsibility, but people often do not have the level of financial saavy necessary to understand complex financial products. They rely on people they believe are experts, particulary if they have no reason to believe the expert is taking the opposite side of the trade and betting against them.

Ash said...

Hard money was diluted over time throughout history and then completely abolished in our global economy. The reason is because, well, there was no other way...

Politicians, bankers and the like do not cave in to the people when doing so becomes the least bit inconvenient for their system of rents and profits. There will be tanks on main street before there are full promises nominally paid out. Only when HI seems the least worst option will they cave, and that's some time off. We may already realize that it is, but these elites are a stubborn bunch and they have everything riding on the current system (at least in their minds).

the debt ceiling pretence is no different from any other pretence elites have been using in this country for decades now. Just political theatre that is used to justify "austerity" measures, while absolutely nothing is fundamentally restructured in the system.

DP said...

people often do not have the level of financial saavy necessary to understand complex financial products

I don't know about you, but I never heard of J6P buying an MBS or a CLO. The people who were, really ought to have known better - if they didn't understand it, they had no business buying it! J6P needs protecting from those idiots, not the smartass Michelin starred chefs stirring the cauldrons of toxic brew at the GS kitchen. Without the dumbass "experts" buying, the cauldrons would have gone cold quick enough.

The desperate search for yield. Indeed.

DP said...

Personally, I'm all for "austerity measures". They're LONG overdue. The cuts in public spending now shouldn't be needed -- the increases in spending in the past were the real mistake. However... bygones...

There will be tanks on main street before there are full promises nominally paid out.

I'm not so sure. Look back at 2008 — the bailout was already done and dusted before the man on the street was really aware there had been a problem, no? I didn't see any tanks in the streets that forced TPTB into putting together a new tranche of $700b to shore-up the banks then, did you?

A threat that if it wasn't done then people would likely take to the streets and there would be "anarchy" [not the peaceful kind that JR envisages naturally evolving through market forces eventually, but the stereotype of "anarchy" — where you have total idiot activists putting interesting objects through the closest window :-\ ], sure.

Seems like they don't waste too much time, to me.

Ash said...

Did u see any of that 700B? Did anyone u know? Sure they will throw us some crumbs to mitigate the chances of full blown anarchy, but in the end it costs them less to put ur city under martial law than to destroy the entire debt-dollar system.

I see no reason to think Americans will suffer a better fate than Greeks...why our national assets will remain ours, while theirs are sold off to the lowest bidder. And given the size of our economy, I imagine we can be made to suffer two bit thugs for a lot longer than they can.

Everyones in favor of austerity until it costs someone they know a job, pension, health benefits, etc. Morally, its questionable at best when elite institutions and ppl are kept in power while austerity is imposed on everyone else. But more importantly, from an economic standpoint in a "democratic" nation, its murder dressed up as suicide (i.e. poisoning made to look like a drug overdose)

Biju said...

Here is a REAL Treasure chest, better than our esteemed FOFOA's.

THIRUVANANTHAPURAM: The legend of El Dorado was definitely not set on the Sree Padmanabhaswamy temple. But the seven-member panel, which is drawing up a list of assets at the famed shrine here, had a feel of the lost city of gold as they set foot in one of the two secret vaults located inside the sprawling granite structure which gives the Kerala capital its name.

On Thursday, the team assisted by personnel from the fire services and archeology department opened the locks of vault A to find a narrow flight of stairs leading down to an underground granite cellar. Oxygen was pumped frequently into the chamber and artificial lighting provided to enable the observers to work inside.

What they saw inside was startling, sources said. Gold coins dating back thousands of years, gold necklaces as long as nine feet and weighing about 2.5 kg, about one tonne of the yellow metal in the shape of rice trinkets, sticks made of the yellow metal, sack full of diamonds, gold ropes, thousands of pieces of antique jewellery studded with diamonds and emeralds, crowns and other precious stones lay scattered in the chamber marked 'A'.

Friday threw up far more surprises in the form of 17 kg of gold coins dating back to the East India Company period, 18 coins from Napolean's era, precious stones wrapped in silk bundles besides over 1,000 kg of gold in the form of coins and trinkets and a small elephant made of the yellow metal, sources said.

There were also sovereigns bearing the 1772 seal indicating they were from the reign of the then native king Karthika Thirunal Rama Varma. There are a total of six vaults marked A to F in the shrine. The A and B cellars have never opened since 1872.

Reports said the value of the recoveries so far from vault A alone may exceed over Rs 50,000 crore. This doesn't take into account their antique value. With chamber B, yet to be opened, speculation was rife that the shrine would pip Tirupati Balaji, who too has been assessed at a little more than Rs 50,000 crore to a distant second. No official confirmation has been forthcoming on the value of the recoveries.

Retired Kerala high court judges — Justice M N Krishnan and Justice C S Rajan — appointed observers by the Supreme Court said, ''It's difficult to give an exact date about when the stock-taking would be completed. The B and E vaults remain to be opened. We think it may take another week.''

Asked about the value of the assets, Justice Krishnan said the committee was drawing up the inventory of items and were not determining their price. The panel had set out on the job on June 27 and opened three vaults marked C, D and F till Wednesday. Assets found in these chambers were estimated to be worth over Rs 1,000 crore.

The wealth discovery has raised questions on the shrine's security. As of now, the internal security is managed by the temple employees, but this may be inadequate in the light of the events.

Biju said...

more of the same - the fore most lure for past muslim plunderers from Afghanistan/persia and later British. who will be next ?

Treasure unearthed in Indian temple in Kerala
By Ashraf Padanna Kochi

Treasure, thought to be worth billions of rupees, has been unearthed from secret underground chambers in a temple in the southern Indian state of Kerala.

Precious stones, gold and silver have been found at Sree Padmanabhaswamy temple, unnamed officials say.

The riches are thought to have been languishing in the temple vaults for more than a century, interred by the Maharajahs of Travancore over time.

They have not been officially valued and inspectors are taking an inventory.

Inspectors say they will continue cataloguing the treasure for at least one more week.

Unofficial estimates say that the treasure discovered so far over four days of inspections may be valued at more than 25 billion rupees ($500m). But historians say that assessing the true value of these objects is likely to be extremely difficult.

Nevertheless security has been stepped up at the temple: "I have instructed the police chief to reinforce security further following the findings and it would be there permanently," Oomen Chandy, the state's chief minister said.
Concealed riches

The Sree Padmanabhaswamy temple was built in the 16th Century by the kings who ruled over the then kingdom of Travancore. Local legends say the Travancore kings sealed immense riches within the thick stone walls and vaults of the temple.

Since Independence, the temple has been controlled by a trust run by the descendants of the Travancore royal family. After 1947 the kingdom of Travancore merged with the princely state of Cochin, which eventually became the present-day state of Kerala.

The inspections at the temple began after India's Supreme Court appointed a seven-member panel to enter and assess the value of the objects stored in its cellars, including two chambers last thought to have been opened about 130 years ago.

The Supreme Court also endorsed a ruling by the high court in Kerala, which ordered the state government to take over the temple and its assets from the royal trust. It also ordered the trust to hand over responsibility for the temple's security to the police.

The initial court petition was brought by a local lawyer, Sundar Rajan, who filed a case in the Kerala High Court demanding the takeover of the temple, saying that the current controllers were incapable of protecting the wealth of the temple because it did not have its own security force.
Royal wealth?

The current Maharajah of Travancore Uthradan Thirunaal Marthanda Varma, who is also the managing trustee of the temple, appealed to India's Supreme Court.

He said that as Maharajah he had every right to control the temple because of a special law enacted after independence, which vested the management of the temple with the erstwhile ruler of Travancore.

But his appeal was rejected - Maharajahs have no special status in India and they are treated like ordinary citizens.

The members of the Travancore royal family consider themselves to be servants of the presiding deity at the temple, Padmanabhaswamy, which is an aspect of the Hindu God Vishnu in eternal sleep. This is why they historically entrusted their wealth to the temple.

But there was a public outcry when the Maharajah attempted to retain control of the temple by citing the special law, with many arguing that the wealth belonged to the people now.

The vaults were opened in the presence of the panel, and observers, which include high court judges, temple officials, archaeology authorities, Sundar Rajan and a representative of the current Maharajah.

DP said...

Everyones in favor of austerity until it costs someone they know a job, pension, health benefits, etc.

I don't know if that's the case where you live, but certainly my experience with people's attitudes to it in the UK is that most (99.7% perhaps? :) ) are very much not in favour of it. They generally "sort of understand that cuts must be made" (but don't understand what the effect is if those cuts aren't made -- they tend to believe in Santa Claus just as much as the magic money trees that are apparently tended in the gardens of the Palace of Westminster). When you press them on what can be cut you tend to come away with a very, very short list. You don't really need any paper or a pen in fact, even if you have a very short memory. :-\

Personally, my experience has included working with a previously-medium-sized company with offices across Europe and in the US, which was hammered in the storm and now restructured to a kind of platform company consisting of just half a dozen core people with one small office in London, a private cloud datacentre, and freelance project workers as-required working out of house over the Internet. I was fortunate to be sufficiently core to the operation that I was one of the half a dozen people still around to lick our wounds and limp on. And limp we did for a while. I considered myself lucky to bring in 1/3rd of what I had been previously, but on the plus side there was very little to do and I learned some stuff that turned out to be worth more to me than the income I didn't receive in that time! ;-) A close friend of mine, a trusted colleague for over a decade and a great staff resource that I could recommend to anyone if only they would ask, didn't manage to find himself a position for 18 months after he regrettably had to be let go. There was a LOT of competition, for very few positions. So, you can see that I learned a thing or two about austerity in the private sector, up close and very personal.

I am very much in favour of a corresponding austerity within the public sector. It is long overdue. I don't see how the public sector strikes are going to meet with sustained support from a crippled private sector workforce that is expected to somehow pay for it all.

If the more socially acceptable option is to inflate and devalue, enabling all those with a job to continue as they are and many of those who lost theirs and still haven't recovered yet to finally find one, all those made nominal promises to have them honoured, and to prevent a massive deflationary depression — I have no great problem with that. As we are aware, there are ways and means to avoid having your life's savings wiped out by that choice of The Tribe, so it's all good as far as I'm concerned. Inflate away — I'll enjoy not seeing the scenes on the news, as we all go about our business in peace once again.

Did u see any of that 700B? Did anyone u know?

Nope. But everyone I know who had any cash in the bank, still had cash in the bank and there still was a bank to have cash in. Things could have got a lot worse than they did — and they didn't, only because of inflation.

Inflation: not all bad after all, on balance.

Biju said...

Happy July 4th to our American friends.

I thinktoday is the best time to time a Gold buy. you get more Gold for your Cash.

Polly Metallic said...


You said, "I don't know about you, but I never heard of J6P buying an MBS or a CLO. The people who were, really ought to have known better - if they didn't understand it, they had no business buying it!"

It appears that a number of people who made investments for universities, pension funds, etc. were accustomed to more mainstream investments and really didn't have the background to analyze MBS and CDOs. These investments were marketed to them as AAA type vehicles. It's easy in retrospect to say that they should have steered clear of these new financial products, but I for one can see how they could have been fooled by a misrepresentation of the product. A lot of supposedly AAA rated mortgage tranches were actually subprime. MBS and CDOs ended up as far away as Iceland, so in any case there were a heck of a lot of people who bought that "ought to have known better."

DP said...

Why did they buy those AAA rated securities, rather than ones they actually understood? Was it the desperate search for yield?

You didn't have to fully understand MBS and CDO3's or whatever, or be a genius, to know they were "too good to be true". If something sounds too good to be true, it usually is.

Why would some AAA rated securities (that you don't understand) yield more than all the others? Hello? Red flag going up here anyone?

But, as with everything, the value judgement is left to the person buying more than the person selling, so...

Ash said...

I meant everyone in the developed world who either doesn't understand what austerity implies or understands but has no personal exposure to it yet, which is mostly ppl in the US bc europe is well ahead in the strategically cruel austerity game. There's a difference between reducing public deficits in a sustainable manner and merely pretending to do that. That's what we're doing in the West...its truly an extend and pretend world. Deficits in the US or Europe won't get any better with these propsed measures... I guarantee that with the full faith and credit of a sovereign nation.

I have no problem with HI either...much better outcome than HD. As I'm sure u have noticed, I am very displeased with the way I think things are headed over the next 20 or so years. But my displeasure is just that...mine and inconsequential to what will happen. Things could have gotten much worse here than they are right now, but prbly not as bad as they now will get here and most other places. When u roll the snowball down the snowy hill, it just gets larger.

DP said...

I knocked up a post a day or two ago that I could have been preparing just for this conversation with you I think, Ash. :-) The numbers in there are totally bogus, it's just to illustrate a point FOFOA made, but which very much chimed with thought's I'd had previously. I'm interested to know what your thoughts are on this general view of how things are progressing, if you are bored and have a moment to peruse it over the weekend say.

Have a good one - cheers! ;-)

Ash said...

Well I'm on a train now and quite bored, but I only see a graph on your post, no numbers or anything. Perhaps its my phone, so ill take a look tonight when I get to the comp.

But just looking at the graph, it seems that your monetary base explodes in the future while M3 plummets into the abyss ;-)

costata said...

Hi All,

Chalk up another one to A/FOA. The article below talks about the US$ reserves falling but not because anyone is dumping it.

Attesting to the continued global loss of confidence in the U.S. dollar, the greenback’s share of the world’s reserve continued to slide in the fourth quarter of 2010, the latest data show. Interestingly, the trend can be explained entirely by valuation effects, with the trade-weighted dollar depreciating 4%% in that time frame.

The U.S.’ share of allocated reserves fell in the first quarter to 60.69%% from 61.53% from Q4 2010. Central Bank reserves move slowly, but the slide in the greenback’s share, which Nomura suggests would be even steeper if China was included in the sample, has been very pronounced if one takes a longer-term window.

Robert LeRoy Parker said...

Bailout in russia.


Seems a bit surprising with their oil economy.

Ash said...


I do see that you have some other posts on UK money supply on your site. My initial thoughts on this issue are pretty simple, and while I'm not really familiar with any differences between the UK and US definitions, I assume they can't be too big. Either way, the underlying point remains the same.

Which is that the creation of base money in our system typically lags the creation of broader credit money in the private sector. So when the Fed or BoE engages in QE or other market operations, that really does very little to influence the broader measures of money supply, which tend to even include parts of the "shadow banking system" that have been consistently collapsing since 2007-08 (such as various customized repo transactions).

This is a fundamental idea underlying "chartalism", monetary circuit theory and modern monetary theory (MMT), and also was the main argument underlying a paper by Dr. Keen entitled Bailing Out the Thimble With the Titanic, which I highly recommend.

Edwardo said...

File the following under "Very strange, but not necessarily errant."

It has come to my attention that in their latest report, the web bots-do you know who the web bots are and what they do?-have some very interesting things to say about the prospects for PMs, particularly gold, in the next half year.

I've been following, somewhat casually, the web bots for years, and while they are far from perfect, their forecasts, such as they are, should, by no means, be dismissed. And based on what I've read of their latest report, it seems to me that one could not be accused of fanciful thinking if one interpreted what they are talking about in their latest report as the onset of "freegold."

Edwardo said...

With regard to the question of whether government will outright default, or simply engage in jiggering the nominal value of certain government "obligations", I present the following for your consideration:

Edwardo said...

And on a state level:

JR said...

FOFOA recently commented on eurodollars and touche don how the Eurodollar market and the Fed's actions are emblematic of the "process" of dollar hyperinflation - FOA's "the front-lawn dump" quote that hyperinflation is the process of saving debt at all costs, even buying it outright for cash - and that process is exactly what is going on - the "transformation" of bank credit into base money (aka REALdollars).

FOFOA wrote:

A Eurodollar is "bank credit" denominated in dollars, but existing outside of the Federal Reserve System, primarily in Europe. And when I use the term "bank credit" that really means it is a commercial bank liability for a dollar. In banking circles, a liability is when someone has a claim on you, and an asset is when you have a claim on someone else.

In Central Banking, a foreign currency reserve is an asset, a claim you hold, denominated in that foreign currency, on some entity outside of your zone (presumably in the zone of that currency). In Europe, these CB reserves are Realdollars, not Eurodollars. So the question isn't how many Eurodollars the BIS has, but how many Realdollars it has.

Remember back in 2009 the Fed swapped $500 billion with foreign CBs? That was for this same purpose. Those Eurodollars need to be serviced with Realdollars from time to time. But that $500 billion swap line has now been withdrawn. Today it is $0 which you can see on the Fed's balance sheet. Without that access to Realdollars from the Fed, Eurodollar players must bid up Realdollars on the exchanges, which the Fed doesn't like.

So you probably also noticed that while the $500 billion swap line has been withdrawn, the $630 billion QE2 of Realdollars apparently ended up in the US branches of foreign commercial banks. But as Tyler points out in a subsequent post, these funds are really just providing a false sense of security for the Eurodollar players. (BTW, in this subsequent post there is a good description of Eurodollars.)

Tyler ends with this excellent observation: "if and when there is a surge in dollar needs out of Europe, the Fed will have two choices: QE(x) and FX liquidity swaps."

Now, in my humble opinion, you need to look at these operations in the proper perspective. And in my view, they are not creating new money or new dollars. What they are doing is changing the very nature of our money...

Eurodollars are just like the "bank credit money" we use inside the US. It is nothing but bank credit, backed by an asset that is a claim on someone else to provide Realdollars to the bank. But slowly and surely, we are replacing that backing, those "claims on someone else" with actual Realdollars. This can be seen in the expanding Fed balance sheet…

The Fed has not created more money, it has simply changed the nature of existing money. Remember, FOA said that "...hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

During hyperinflation the entire money supply becomes "Realdollars" rather than bank credit backed by debt assets. So that is how I view all these "excess reserves held at the Fed", QEx and Swap lines etc.., as a step toward dollar hyperinflation.


JR said...


Here is FOFOA on the real driver of credit growth


Credit money is borrowed into existence from the banks. This is what banks do. They expand their balance sheets to satisfy the debtors and for that risk they earn interest. They take the debtor's promise onto their ass(ets) and create liabilities that can be spent like base money created by the government.

This system will continue in Freegold with the exception of the securitization process. The securitization process allows the banks to offload their assets (risks) to savers relieving them of the need for future prudence. Securitization, or structured finance, was born in the 1970's, expanded beyond mortgages in the 80's, institutionalized for sub-prime debtors in the 90's and blew up in the 2000's. Outside the US, this process was more than a decade behind, only emerging in Europe in the 80's.

WAPO factoids confirming FOFOA's point - credit growth is really all about structured finance

Securitized debt grew nearly 50-fold from 1980 to 2000 -- compared with a mere 3.7-fold increase for bank loans. In 1998, traditional bank lending was surpassed by securitized debt for the first time. By the end of 2007, Wall Street accounted for two-thirds of all private U.S. debt."


JR said...


So here is Hayek from 1935's Prices and Production discussing what is often referred to as "Shadow Banking," or the massive part of our credit system that is not traditional bank lending, aka structured finance.

Hayek in 1935:

"There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.

In particular, it is necessary to take account of certain forms of credit not connected with banks which help, as is commonly said, to economize money, or to do the work for which, if they did not exist, money in the narrower sense of the word would be required. The criterion by which we may distinguish these circulating credits from other forms of credit which do not act as substitutes for money is that they give to somebody the means of purchasing goods without at the same time diminishing the money-spending power of somebody else. This is most obviously the case when the creditor receives a bill of exchange which he may pass on in payment for other goods. It applies also to a number of other forms of commercial credit, as, for example, when book credit is simultaneously introduced in a number of successive stages of production in the place of cash payments, and so on. The characteristic peculiarity of these forms of credit is that they spring up without being subject to any central control, but once they have come into existence their convertibility into other forms of money must be possible if a collapse of credit is to be avoided."


Hayek's point being the growth credit via such non-traditional means must be convertible into other forms of "money" or the credit collapses.


JR said...


FOFOA above wrote:

"if and when there is a surge in dollar needs out of Europe, the Fed will have two choices: QE(x) and FX liquidity swaps."

Now, in my humble opinion, you need to look at these operations in the proper perspective. And in my view, they are not creating new money or new dollars. What they are doing is changing the very nature of our money...

Eurodollars are just like the "bank credit money" we use inside the US. It is nothing but bank credit, backed by an asset that is a claim on someone else to provide Realdollars to the bank. But slowly and surely, we are replacing that backing, those "claims on someone else" with actual Realdollars. This can be seen in the expanding Fed balance sheet…"


This shadow banking credit (most of our credit system) must be convertible into other forms of money - no wonder there is a shortage of cash - FOFOA:

"There is always a shortage of cash during a full-bore, in-your-face hyperinflation, which is why the printer has to keep adding zeros"


But FOA knew what "would" be done, as the alternative was/is unthinkable ( "Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.") - cash "must" be made available to meet this need. "The front-lawn dump":

"...hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"


Understanding how the world works is easy as soon as you understand the Wealth Hierarchy. Like this: Earn money/currency, buy what you need, save Gold, enjoy what life has to offer.

Real wealth. Get you some. ---Aristotle


Yeah for beer and Fireworks!

Happy 4th,


Steveo said...

HEY for those who never read the Articles of Confederation, the Constitution, and the Amendments (hint Amendments 1 though 10 are call the Bill of Rights).

All below are Word Docs, they are easy to find on the net, if you don't have Word.

can read all the docs below in less than 1 hour. Misinformation is
rampant concerning these basic laws of the US. Read them, you will be
really glad you did.

Print them, go get a sun tan and read them. They really aren't that complicated. Really, a 7th grader could understand them.
and just in case you got that "all men are created equal" thing stuck
in your was here, in the Declaration of Independence. Just
keep in mind, this was just a declaration, it is not part of the rules
by which we are supposed to live. said...

The happy dancing schadenfreude towards Bill Gross the past 90 days has been a sight to see. And why? Because Bill took the exit ramp from UST, and gave up nominal gains. Bill knew, and knows, exactly what he's doing in this regard. And, the reaction of the crowd is confirmation that most in the financial sector remain stuck in Nominal. Indeed, their ass depends on the Regime of Nominal.

FOFOA and other observers have long observed that hyperinflation is seeded well before the event. One way to plant the seeds is to greatly expand the supply of sovereign bonds, across the time-structure curve. Hyperinflation occurs when holders of those bonds liquidate at the long end and go to cash. Thus, converting parked capital in the long end into money of zero maturity. This past week was a warning shot that such an event is possible. Curiously, it starts within a Normal framework: reallocation of capital from UST to stocks. Indeed, Gross himself is suggesting investors exit UST and buy dividend paying stocks.

Martin Armstrong is also out this week with a new essay, in which he argue that during the middle of the Great Depression, there was a move of capital from the government--where it had collected for several years--back into the private sector. People forget that the US experienced absolutely heroic GDP and strong stock market rallies in the 4 year middle of the US Great Depression. When I see the amount of capital that has been hiding in UST the past several years, I find Armstrong's observation worth consideration.

For several years, I have maintained the following big picture view: eventually, some of the capital hiding in UST would begin to move. When it moved, it would cause earthquakes. What's delicious about the Normals (who manage money in Nominal World), is that they will probably herd themselves now from UST to other investments based on textbook views. But, at this juncture in our Depression, if enough capital moves, it will cause a new crisis. Indeed, this almost seems inevitable to me--it seems like what the system would naturally be inclined to do, next.

I frankly am very confused about what happens to Gold in this scenario. If nominal rates rise, it's axiomatic that real rates become less negative. Surely this must be a headwind for Gold. On the other hand, it's been my view that at some point in the gold bull market eventually the capital coming out of UST would provide the fuel to finally, finally, drive Gold much higher and much faster than seen previously in this 10 year bull market.

Gold's advance over the past 10 years has proceeded almost quietly, as a reflection of the USD's long transition from global reserve currency to a more modest role. Never once has gold put on a scary show to the upside, with its unbelievably sustained low, daily volatility. The only period in which gold's volatility rose was in 2H 2008, when some of the weekly and a few daily price changes were spectacular.

I continue to favor the view that Gold's volatility is too low. Way too low. I hold the same view of market gauges of volatility. Currently, we may be moving into a period in which the OECD financial crisis, which has not been solved one bit, will interact with the tremendous money flow potential of capital coming out of UST and other global sovereign debt.

(cont.) said...


Do not be surprised if global stock markets go ballistic to the upside. Do not be surprised if gold is driven towards 1425 for a brief time. Also, don't be surprised if the UST market tanks, thus pulling down the stock market again, and driving capital towards cash and also gold and silver. Indeed, I could imagine a gold pounding now in July, with a scary gold liftoff into the Autumn towards 2K. More to the point: it may no longer be necessary at all for the FED to either threaten, dangle, or go silent at all on QE3. Indeed, it may be the end of QE3 paradoxically that finally triggers the movement of capital that already exists.

So my message today is as follows: there is a huge amount of global capital that can move. If it moves, it will cause huge ripples. I think we got a preview of that this week. From a solutions standpoint, I really don't have a strategy at this time. But I sense that trend changes are upon us. Even if we are entering an analog to the August 2007-May of 2008 period, stocks and commodities could blast off again (in part because Grains and Energies already corrected) but mostly because of this trapped capital in UST that has the potential to move.

Tekin said...

Is this something related with gold revaluation? What is the next step? A physical only COMEX?

As a result of the recently enacted Dodd–Frank Wall Street Reform and Consumer Protection Act, U.S.-based retail forex dealers such as OANDA are prohibited from offering leveraged trading in precious metals to retail clients after Friday, July 15, 2011.

As a client based in the U.S., you will not be able to trade our four precious metal pairs (XAU/USD, XAG/USD, XAU/JPY, XAG/JPY) on a leveraged basis, effective end of day July 15. Leveraged trading in other currency pairs will remain unaffected, with the same margin requirements.

You will still be able to trade precious metals, but only on a 1:1 non-leveraged basis (requiring substantially more margin).

costata said...

Hi JR et al,

This article by Jim Jubak dovetails neatly with the points JR made in his comment about securitization. A couple of snippets below in italics.

Deposits at U.S. banks exceeded loans by a record $1.45 trillion in May, according to the Federal Reserve. (In the 10-years before the financial crisis in 2008, loans exceeded deposits by an average of $100 billion.)

One of the things that the deflationists seem to do, with monotonous regularity, is misread the incentives of the key players in the $IMFS/banking system. As Gregor pointed out earlier the actions of many of the financial sector heavyweights are driven solely by nominal performance.

Banks have increased their holdings of Treasuries and other government-related debt to $1.68 trillion in May from $1.08 trillion in early 2008, according to Bloomberg. Barclays Capital estimates that Basel III calculations of risk could reduce core capital ratios for the median U.S. bank by 3 percentage points. If banks were to make up that core capital ratio shortfall by raising capital alone, they’d have to raise about $250 billion in new capital, Barclays calculates. Adding Treasuries to a portfolio would reduce that need for new capital. (My emphasis)

Hence Jubak's musings about banks stepping in to buy Treasuries post-QE2.

Happy 4th of July.


PS. Over the last few days I finally had time to read the first four parts of the offering over at TAE by our sophist in residence. I intend to say more about his essays later but my overall impression is that reading them is like receiving the analysis of the likely outcome of a chess game by someone who doesn't know who the players are, the positions of the pieces on the board and what moves any of those pieces are able to perform.

mrbeyond said...

Interesting talks again about the gold dinar.

Ash said...


Funny, because I was going to comment on your comment before I read your chess analogy. So who are the major players in this game, people driven "solely by nominal performance"? Pension fund managers? Those guys remind me of a school of fish. Sometimes they can ward off the sharks by looking bigger than they really are, but, sorry little fish, you're still much lower on the food chain. You want to see some real big players, you should start by training your eyes on the military industrial complex. Those guys could give a damn about "nominal performance".

DP said...

Ash: you should start by training your eyes on the military industrial complex. Those guys could give a damn about "nominal performance"

Personally, I'm more interested in the banking interests — that's where the real power is, after all. Without the mirage of cash from those guys that keeps the wheels spinning on the entire system, the pols and yes even your military industrial complex, got nothin'.

Now, to my mind, those banking interests have a lot more to lose from a wall of failing nominal loans, than getting paid in full on nominal loans made whole only through an exchange for worth less, fresh base money.

See also: that "Mr Madeup" chart of mine with M0 and M3 scenario*; JRs very astute identification of the very point FOFOA had made that prompted me to knock up that crappy chart hoping it would be useful for discussion purposes; FOFOA's assertion that "they" don't need to out-run everyone, only you — and if you're holding USTs and/or cash as you say we should, it is YOU they'll be out-running.


DP :-)

* which was a stack chart BTW; apologies, I should have made that more clear. The bank credit part of M3 was disappearing, to be replaced by fresh M0 base money to make up the difference.

Ash said...


I obviously agree that the major banking "families" hold a vast majority of global power, and the MIC is essentially their tactical arm, but I fail how to see their power = a fundamental desire to achieve nominal returns on debt-assets. Debt, after all, is such a powerful weapon because it extracts wealth through both interest and foreclosure after default. Systemic default is obviously a problem, but micro-managed default not so much. How long can they manage it, that's the multi-trillion dollar question

"which was a stack chart BTW; apologies, I should have made that more clear. The bank credit part of M3 was disappearing, to be replaced by fresh M0 base money to make up the difference."

Yeah, I got that. I've always said deflation vs. HI is all about the timing, and I didn't see any dates on your chart past 2011. While the creation of base money may stall for periods of time IMO, I expect it will generally increase over the next decade too. Will it completely offset the declines in credit components of money? I doubt that it will for some time.

Ash said...

Oh, I should also add that debt creates a lot of economic and political leverage that can be used to extract wealth even before technical default... as we clearly see in Europe now.

Lomcvok said...

Perhaps I missed responses to an earlier discussion, but it appears Randal Strauss has left 'USA Gold New and Views'.

These appear to be his last comments:

"RS View: Adieu, my friends and fellow travelers! Over these past dozen years I hope I’ve succeeded in helping you to embrace a new thought or two, not least of them being this most basic premise: Any given national currency can indeed serve well enough for standard banking practices in our fast-paced modern lives (think here in terms of financing/borrowing requirements, checking accounts, and various cash/credit/debit transactions). Don’t sweat the small stuff — it’s here today and gone tomorrow. However, and this is vital, when your needs turn instead toward consolidating those various nondimensional incomes and/or bank accounts into true wealth suitable for mid- to long- term savings, for reliability and soundness nothing beats financially-unencumbered unfractionalized/nonderivatized physical gold. Get you some. — Randal"

Any idea where (or if) he might be posting in the future?

costata said...

As FOFOA pointed out to Rick Ackerman the "hit" can be socialized through HI. Time for a few more links and quotes so we can get a better appreciation of how this is being put in place.

"The FHA total book value of loans has soared to over $1 trillion. These are loans made with 3.5 percent down payments and carry laxer lending standards. So it should be no surprise that defaults for FHA insured loans are hitting record levels." (My emphasis)

As JR pointed out above most of the debt has been securitized and handed off to the pension funds etc.

"Securitized debt grew nearly 50-fold from 1980 to 2000 -- compared with a mere 3.7-fold increase for bank loans. In 1998, traditional bank lending was surpassed by securitized debt for the first time. By the end of 2007, Wall Street accounted for two-thirds of all private U.S. debt."

As per the Jubak article I linked above deposits now exceed loans. Those deposits, of course, are loans to the banks. Hence they are (currency) liabilities on their balance sheets. Who is guarranteeing that those deposits will be paid out in currency? The FDIC and their sugar daddy the USG, of course.

The pension funds remind Ash of a "school of fish" whereas the MIC is a "shark" apparently. Pure sophistry of course but our sophist in residence inadvertently draws attention to something worth noting. (Sorry you did not like my chess analogy Ash.) SIR writes:

"You want to see some real big players, you should start by training your eyes on the military industrial complex."

But Ash I thought you argued in your 5 part series that the fall in "aggregate demand" makes your debt deflation and economic outcome inevitable. Last time I "trained" my eyes on the MIC they were spending (demanding) like drunken sailors. So to were sovereign states.

costata said...

Woohoo debt deflation in action.

According to this article from the NYT discussed at ZH the banks are voluntarily reducing loan balances.

Not so say these commenters on the story:

by random shots
on Sun, 07/03/2011 - 14:24

Loans that are seeing principal reductions, like the one in the NYT article, have already been written down to "Fair Market Value" when they were first acquired. So a $500K outstanding loan was written down to $350K for reporting purposes.

However, they still required the owner to pay the $500K loan. Banks are now providing principal reductions to owners because they figure they can no longer milk the borrowers who are current (default risk is rising).

They offer principal reductons to owners to keep them chained to their mortgages. Banks get good PR from the sheepies without having to take additional writedowns

And who paid these banks to take over other banks? Who guarranteed any losses on the loan books that they acquired? Uncle Sugar of course. My emphasis below.

by Careless Whisper
on Sun, 07/03/2011 - 21:19

OK there's 347 comments here right now and I haven't read any of you drama queens do the simple math. Enough with the MERS and who owns my note routine. This re-fi from Chase is very simple. Completely done to benefit Chase. The lady had an option arm; she was paying 1% interest, with the rest of the interest - probably another 6%, being accrued and added on to the principal - negative amortization as they say. After 5 years she would owe about $390,000 on her $300,000 mortgage. Her condo currently being worth $150,000; who knows what it will be in 5 years. At that point she mails the keys to Chase. Instead of receiving 1% per year on $300,000 in interest ($3,000), Chase now gets 5% on $150,000 ($7,500) and no foreclosure and the loan stays performing. Plus the new loan docs will be more legit as Chase has discontinued using MERS entirely.

Edwardo said...

DP wrote:

"Without the mirage of cash from those (banking interests)[sic] that keeps the wheels spinning on the entire system, the pols and yes even your military industrial complex, got nothin'.

Like the rest of the crew out here, I'm inclined to agree, however, the hierarchy you assert may not be so clear cut as all that. For example, it's my contention that key parts of the U.S. military and U.S. spy complex are largely self funding and self perpetuating.

If we think, and rightly so, that international banking and finance are opaque, then the level of opacity that one finds with respect to the actions of the MISC (Military industrial spy complex) is almost certainly even more mysterious ( recall BCCI) and sinister.

And while international banking and finance may be, as it were, calling the shots, one would do well to keep in mind that there are factions within this putatively (most) powerful group that suggest that banking interests are not, in fact, monolithic.

My point?

Factionalism is the sort of thing that can create power vacuums of the sort that the military could, under certain conditions, take advantage of. Put another way, sometimes the mob enforcer/henchman becomes the boss.

Blondie said...

Regarding default/delinquency rates: an interesting observation

Ash said...


Not every statement that you don't understand or that undermines your worldview is an act of "sophistry". I thought you knew that, but now I'm really not sure what you think sophistry is. So now a simple biological analogy between fish, sharks, pension fund managers and highest-level executives/officials in the financial MIC becomes another exercise in sophistry. Honestly, I would have thought the quality of your counter-arguments would have evolved since a few months ago.

"The FDIC and their sugar daddy the USG, of course."

If you really believe the FDIC is gonna make good on all of those "insured" deposits, I've got some gold-plated tungsten bars to sell you.

"But Ash I thought you argued in your 5 part series that the fall in "aggregate demand" makes your debt deflation and economic outcome inevitable."

No not inevitable, but very very likely. And not just a "fall" in HD, but a structurally-rooted and rapidly progressing unemployment/credit situation that will demolish AD for most assets and many other goods. Perfect justification for further military intervention in other parts of the world, perhaps including some domestically carried out operations as well. What could possibly go wrong with that?

Your pension manager reincarnation of Bobby Fischer needs to understand that the game is now fully rigged, and that his type were never meant to kept in much higher regard than the pawns, when push came to shove.

Aaron said...

Hello Ash-

"If you really believe the FDIC is gonna make good on all of those "insured" deposits, I've got some gold-plated tungsten bars to sell you."

Maybe you can play that one out for me a bit. Why in the world would the FDIC not bail everyone out? What's the big deal if the Fed prints to support nominal gains? Okay, the purchasing power of the dollar goes down the toilet, but remember, we're all in this together!

Can you imagine what day two would look like after the FDIC DOESN'T bail out your neighbor's bank? "Hello depositors and pension holders, please stow your tray tables and return your seat to the upright position. Your life savings is about to be wiped out."

No, that's bad juju, Ash -- and we are not going to go there. The banks will be bailed out and your pension fund (well, not YOUR pension fund) will be saved and allowed to perform nominally. No broken promises! "You want your $500/mo social security check? Here you go! You see, we never broke our promise. It's not our fault it can't buy you anything."


Aaron said...

Thanks for the link Blondie. Sadly Fannie and Freddie will also get (0.3%? 0.6%? 9.2%? xx%?) of their portfolio bailed out with the rest. What a monster we've created, no?

Now where did I put my gold again? AH, there it is. *phew*

costata said...

Hi All,

Ash On Gold

Part 1/2

These extracts are for those readers who haven’t waded through that 5 part series of our sophist in residence who would like a distillation of his thoughts and recommendations on physical gold.

(From Part 4 of the series by Ash)
"If this process of short-term (within the next 10 years) debt-dollar deflation is likely to occur within developed economies, then one should not be surprised to see both paper and physical gold holdings liquidated .......... A gold price collapse in dollars could occur just as it did in 2008, since nothing has fundamentally changed in financial markets since then, except there is more debt and less ability of governments and central banks to intervene."

If there is a likelihood of the price of gold collapsing why should anyone buy it now?

"..... a smaller excess portion of savings should be held in dollars for more favorable entry points into various hard assets over the next few years, including physical gold."

So we should wait and buy it later.

"Until then, we should remember that upcoming years will be characterized by debt-dollar deflation, and therefore the dollar price of gold will most likely face significant downward pressure for some time. That does not mean physical gold, however, should not be purchased as either inflation insurance or a long-term monetary store of value right now."

"..... now is a great time to allocate some excess wealth towards precious metals."

No, apparently we should buy it “right now”.

(From Part 5 of the series by Ash)
"The first four articles in this series (Dialectic Foundations, The Evolution of Value, The Final Realization and Deflationary Canyons and Caves) used theories, facts, data and general observations to explain why the dollar price of physical gold would most likely take a significant hit over the next decade."

"Gold may benefit a bit from capital flight out of Euro-based holdings over the next few months or year, but it will be difficult for it to maintain any marginal increases in value as financial contagion spreads and massive debt obligations come due.

Apparently we should not buy gold now after all.

"The latter are typically not payable in physical gold due to the system's evolutionary design, and so it will merely serve as a temporary and relatively illiquid repository of wealth for many investors."

This seems to contradict the recent legislation in the EU that made gold acceptable collateral alongside currency on EU exchanges and in their financial markets. The moves by several US states to accept gold and silver in payment also seems to undermine this assertion. As to the suggestion that it is an “illiquid repository of wealth” I’m wondering which planet he’s talking about.

"The debt-dollar system of "cash" and liquid bonds, on the other hand, will greatly benefit from capital flight, and that will also serve to suppress the value of gold on international exchanges."

So we should be in cash and liquid bonds.


costata said...


Part 2/2

"In stark contrast, physical gold will become valuable mainly because it serves as a convenient and accepted medium of exchange in certain locations after the global financial architecture has crumbled into tiny bits and pieces. Ironically, the central hubs that were most dependent on that architecture will witness the most dramatic reversal, during which physical gold becomes a very important constituent of survival."

But we will need physical gold for “survival”?

"All of these physical, political and social deficiencies make it more likely that people will need to engage in extensive and reliable (trusted) trade to procure the things they need to survive, protect existing wealth and maintain bearable standards of living after HI occurs. Once again, this fact speaks volumes for the value of both physical gold and physical silver in the future."

So I guess we should own physical gold after all. (Of course, “and silver” too.)

Here is Ash replying to a witty commenter calling herself Helena Handbasket. From the comments on part 4 of his series.

"I'm hoping when it's all said and done, some people "on the fence" will decide to hope (sic) down on our side... perhaps even some who have bought into Freegold (literally). I have no illusions about convincing the extremely hardcore advocates, though."

I have another couple of comments to make about this series. Meanwhile I invite readers to reflect on the character of Ash the advocate. From part 1 of his series:

”(PS: The descriptions of FOFOA's views above are my personal interpretations and have not been confirmed as either being accurate or inaccurate by FOFOA)” (My emphasis)

Of course Ash makes this disclaimer in small print at the end of his piece rather than in the body copy of the post. Now from an email that FOFOA sent to Ash before Ash posted his series (my emphasis):

”Hello Ash,

You present me with four paragraphs you wrote and ask me if it is an accurate representation of my view. Honestly, what do you expect me to say? In case you haven't noticed, I don't even summarize my own view in less than 50,000 words (long posts + the embedded links). Boy, if only I could fit my view into four paragraphs!

…………… But the truth is that you are trying to de-straw the man before you knock him down. So I will tell you this: You do not have my permission or support to portray your views of my writing as an accurate interpretation. You are obviously welcome to present them as your own interpretation of my work which I will feel free to refute in the event that you misinterpret or misrepresent my perspective on any matter.

I'll look forward to reading your series of articles on gold.


Gee Ash what part of the meaning of “straw man” implies that FOFOA considers your perspective on Freegold-RPG as neither “accurate” nor “inaccurate”. I would imagine that I’m generally considered rather hard core on the issues which we discuss hereabouts. I have to say that you have convinced me Ash. You are a complete fool and an egotistical, dishonest, hypocritical one at that.

Aaron said...

From the comment section of TAE where Ash posted his multi-part series (which Costata refers to above). A comment from Ash to another poster:


Thanks for your comments. Obviously my intention was not to make the articles as convoluted as FOFOA's, it just naturally developed that way... especially at the beginning. Honestly, I believe FOFOA has some brilliant (and obviously complex) arguments... and I'm a "perfectionist" when it comes to writing about this stuff. Those two things don't combine well for short-term clarity, but I'm hoping when it's all said and done, some people "on the fence" will decide to hope down on our side... perhaps even some who have bought into Freegold (literally)."

"I'm hoping when it's all said and done, some people "on the fence" will decide to hope down on our side"

Why is that Ash? Why exactly do you hope some people on the fence will decide to hope down on [your] side?


Ash said...


For being a somewhat intelligent person, I'm surprised you would resort to such dirty tactics to critique my series. Maybe not that surprised, because I assume it would take you more effort and many fewer mis-characterizations to actually address the substance of my argument, which is something you understandably prefer not to do.

So basically everything you quoted from me in your first post is entirely consistent, contrary to what you valiantly but unsuccessfully try to imply, and it can be boiled down to the following statement - anyone who tells you to either buy or sell physical gold without learning many many details about your personal situation is full of shit and should be immediately ignored. If you thought the point of my series was to make blanket recommendations for whether to buy gold, then you obviously need longer finger nails, because all your scratching isn't getting you anywhere near past the surface.

Regarding your second post quoting a comment on the TAE forum and FOFOA's email to me... are you seriously using that as evidence that I was somehow "dishonest" when writing my articles. Seriously, man, you have gone off the deep end. As your own post clearly shows, FOFOA told me I couldn't portray my views of his writing as accurate, and that's exactly why I included the disclaimer in Part I. It was originally in the body of my post, but TAE has final editing control over my articles published on their site, and they decided it would be better at the bottom. And in terms of how to structure a piece of writing that is meant to be persuasive, they were probably right about doing that.

And, after receiving a few responses from FOFOA about how HI/freegold will play out, I edited my descriptions to align them with my better understanding. They were not confirmed as being accurate or inaccurate by FOFOA before hand... that's just a fact. I have yet to hear any regulars here tell me why my descriptions of Freegold are not accurate, so if you feel that's the case, don't be shy and deceptive... just come out and say it. Also, show me one time here where I have said I was writing the series for any other reason than trying to convince people "on the fence" that Freegold was unlikely to occur. I even said exactly that in FOFOA's comment section awhile back. I shouldn't have to explain that, because what other reason could I possibly have?

Anyway, now that you have managed to openly make a fool out of yourself with your nonsensical attacks against me, I invite you to actually address the substance of my arguments against near-term HI and Freegold. I know you can do it, but perhaps it takes you a very long time to process your thoughts...

Ash said...


"This seems to contradict the recent legislation in the EU that made gold acceptable collateral alongside currency on EU exchanges and in their financial markets. The moves by several US states to accept gold and silver in payment also seems to undermine this assertion. As to the suggestion that it is an “illiquid repository of wealth” I’m wondering which planet he’s talking about."

See, that wasn't so hard. Unfortunately for you, my statement wasn't "contradicted" (you meant undermined) by any recent legislation in the EU or Utah. Just like it doesn't, by itself, undermine the theory of Freegold, even though it suggests a minor symbolic trend towards allowing gold to be secured by loans and accepted as a medium of exchange in certain areas. If anything, it strengthens my argument that gold will continue to be used as a financial vehicle and for political posturing, while it is extracted from "sovereign" nations and individuals towards the insatiable elites. And re: gold's liquidity, if it isn't "relatively illiquid" compared to dollar-based instruments, then we have some radically different conceptions of what "liquid" means. No, you can't pre-suppose the existence of Freegold to argue that gold is the most liquid asset out there.

Keep it coming, man, but think the next one through a bit more before you hit "publish your comment".

Ash said...


"Why is that Ash? Why exactly do you hope some people on the fence will decide to hope down on [your] side?"

Why does anyone here write anything about what they think is going to happen? To convince others, or at least, to present legitimate information and allow others to consider it, and hopefully convince themselves. I'm a near-term dollar "deflationist", obviously, and in my mind it would be ridiculous for me not to critique the best argument for near-term HI out there.

No offense, Aaron, but what kind of question is that? Are you and costata jointly working on developing some kind of conspiracy theory involving me and the "anti-gold powers that be", or are you just failing to understand the most simple motivations of human beings?

costata said...


Part 1/2

Ash tells me: Not every statement that you don't understand or that undermines your worldview is an act of ‘sophistry’.”

But Ash you see I do understand what you write and it doesn’t undermine my “worldview” at all. I dubbed you our sophist in residence (SIR) because that is one of the techniques you employ but I recognize that you have a broader range of tricks than that. Let’s analyze some passages from part 1 of your series without using the “S” word even once.

Ash states part of the Freegold-RPG below but he gives it his own little twist (my emphasis) by using the ‘present continuous’ tense.

They (giants) are hoarding gold and patiently waiting for the dollar to "find" its true "store value" in relation to physical gold, at the bottom of a very deep monetary well.

To be truly accurate he should have said this:

“They (giants) have hoarded gold and are patiently waiting for the dollar to find its true store of value in relation to physical gold, at the bottom of a very deep monetary well.”

Lest you think this is nitpicking it actually provides an insight into one of his sneaky tactics. Basically he slips a modifier or a condition into his opponents arguments or statements (as restated by Ash) in order to twist them to suit his preferred arguments and counter-arguments. Back to SIR’s text where the present continuous tense is about to become the ‘future’ tense (my emphasis):

In essence, they will outrun the "haircuts" on debt-assets by converting them into gold and other hard assets before any of the smaller players even know what hit them....

Let’s put those two sentences together with corrections.

“They (giants) have hoarded gold and are patiently waiting for the dollar to find its true store of value in relation to physical gold, at the bottom of a very deep monetary well. In essence, they have outrun the "haircuts" on debt-assets by hedging and/or converting them into gold and other hard assets before any of the smaller players even knew what was coming to hit them”

So why did Ash introduce these twists. He did it to set himself up to introduce a crucial phrase:

A fundamental problem begins for this argument, in my opinion, when it attempts to predict the long-term destiny of physical gold through the lens of isolated monetary and political systems.

The key to understanding what follows is that Ash has two key platforms in place now. Firstly to avoid any debate about history where uncomfortable facts might be thrown at him. This is now a debate about “prediction”. Secondly he has opened up the time scale to his preferred vista. As you would see if you read the whole series 5 years or so is short term for Ash while long term may be 15 years or more. Plenty of wiggle room there.


costata said...


Part 2/2

Isolated to the extent that they are perceived as being both able and willing to unleash a dollar devaluation "bear" on the current financial system, allowing a new global paradigm to inevitably rise in its wake.

I suspect Ash is using the word “isolated” when he actually means “insulated”. That would at least hint at some acknowledgement and understanding of the Euro architecture’s role in the system described by A/FOA and FOFOA and the end of the $IMFS that is central to the dialogue here. In order to more accurately state the Euro Freegold-RPG “paradigm” let’s give Ash the benefit of the doubt on this score and correct his statement as follows:

Insulated to the extent that the Eurosystem Central Banks are both able and willing to survive a dollar devaluation "bear" on the current financial system, ready with a new global paradigm to inevitably rise in its wake.

Close enough to being accurate without completely rewriting his text. Now at first this next passage may sound like empty rhetoric:

Are we really watching the monetary, social and political systems around the world siege the global financial system and take back a large portion of the value lost through years of imaginary capital creation and wealth concentration? Or are we simply watching them respond in kind as mechanical parts of an unholy and inseparable union?

Does Ash understand the impact of the drive by Central Banks and private citizens to acquire gold in many parts of the globe? Does he understand that propping up the US dollar reserve system dictates complementary action by other actors? Again let’s give him the benefit of the doubt and assume that this passage displays that he is at least aware of these issues.

With the foundation laid Ash now introduces his straw man:

However, as I plan to demonstrate in further detail, it is FOFOA who argues from the false premise that debtors occupy a distinct class in society apart from savers, and that the former are merely consuming more than they contribute to productive society. That premise naturally leads him to conclude .......

Now he is on his preferred turf. A straight Marxian class struggle. Meanwhile FOFOA has specifically rejected the Marxian view of a division along class lines in his “savers vs debtors” and “hard vs easy money” concepts developed on the foundation laid by A/FOA. So, corrected, this final paragraph should read:

“However, as I plan to demonstrate in further detail, it is Ashvin Pandurangi who alleges FOFOA has a false premise that debtors occupy a distinct class in society apart from savers, and that the former are merely consuming more than they contribute to productive society.”

As I said earlier Ash, I understand what you write. And also as I wrote earlier I understand exactly what you are - a complete fool and an egotistical, dishonest, hypocritical one at that. That’s it for tonight from me. But I will have a few more observations to share with you on your series in due course.

Edwardo said...

Aaron wrote:.

"Okay, the purchasing power of the dollar goes down the toilet, but remember, we're all in this together!"

The following statement is not meant to indicate that I disagree with the "nominal gains" argument, but I don't think "we're all in this together." While we all must have the basics, as it were, some members of our society will find a steep loss of purchasing power to make little difference to their standard of living.

raptor said...

Here are some numbers: The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce.

Aaron said...


"No offense, Aaron, but what kind of question is that? Are you and costata jointly working on developing some kind of conspiracy theory involving me and the "anti-gold powers that be"

No offense taken. I'm not working with Costata on anything. It was an honest question. I ask because you go to great lengths to explain your viewpoint which I appreciate, but when I see a glaring comment like the one about the FDIC, I think to myself, "Ash is a smart guy -- how he can possibly not see saving any/all debt to ensure nominal performance?" which makes me start to question your motives in turning people on the fence over to your side as you say. Are you trying to help people protect their life savings or is it more important to encourage people to agree with you for agreement sake alone?

If I myself were to tell people to hold dollars putting their entire life savings at risk, I don't think I could live with myself knowing those people are going to get wiped out. But given your response I imagine you have no malicious intent. You simply can't see the political will to prevent deflation at all costs.

But while we're at it, can you help me understand why you think the FDIC is going to blow the system up when there is quite obviously a political solution waiting in the wings allowing everyone to maintain nominal performance? Again, it's an honest question. I'm not trying to attack you. I'm simply having a hard time understanding how you would miss what seems to be pretty obvious to me.

Ash said...


I obviously don't think that the elite financial class wants to see the dollar go up in flames, at least not anytime soon. If another leg down in credit markets sparks another crisis for financial institutions, I believe the major ones will be preserved at the expense of taxpayers once again, and depositors as well. There is no political solution of HI in this system at this point in time, IMO, and that was what I was trying to get across with the analogies in Part I.

From that perspective, it's quite easy to see how your deposit funds could be locked up for some time and/or not paid out at full value. Recently, the DOJ went after major online poker websites and froze about $150 million in players' funds. They have all repeatedly said that our funds are "secure" and that we will eventually get our money back, but after about 3 months, still no word. Now, it seems that Full Tilt has sold its operations to European investors, who have agreed to pay out players as a part of the deal. Anyway, the point is that a similar process could happen on a much larger scale, where you are continuously told that your funds on deposit at the bank are "safe", but it's going to take "some time" for them to work out all of the "kinks" and "issues" with the banking system.

"Are you trying to help people protect their life savings...?"

Yes, no different than you or anyone else. I'm trying to give them the information/analysis I believe will help them make proper decisions for their own personal situation, and survive.

Ash said...


You're slowly inching forward towards the substance of my argument, at the speed of a hobbled turtle...

"The key to understanding what follows is that Ash has two key platforms in place now. Firstly to avoid any debate about history where uncomfortable facts might be thrown at him. This is now a debate about “prediction”. Secondly he has opened up the time scale to his preferred vista. As you would see if you read the whole series 5 years or so is short term for Ash while long term may be 15 years or more. Plenty of wiggle room there."

So you think I framed my argument in a way to avoid discussing the various historical things that have allegedly occurred in support of a future Freegold paradigm? The fact is that Freegold has not occurred yet, so it is a prediction about the long-term state of our global financial/monetary system, just like I wrote. I have no idea what you mean when you say I'm giving myself a lot of "wiggle room". My position is very simple - short-term dollar deflation (~10 years) followed by dollar HI, but no global Freegold system.

"Does Ash understand the impact of the drive by Central Banks and private citizens to acquire gold in many parts of the globe? Does he understand that propping up the US dollar reserve system dictates complementary action by other actors?"

Yes, I do, and my entire argument is that FGAs misinterpret those actions, because they view them from a flawed theoretical perspective. I think it's fair to say that a good deal of your argument rests on the anticipated behavior by global economic actors suggested by game theory. That while the Fed is propping up the UST and USD, other central banks and governments are slowly defecting towards a Freegold regime; an optimized solution for the various other players involved.

Here's what I had to write about game theory, in the context of FPG:

It should be clear that a simple "game" with simple "rules", such as the square game above, cannot provide insights into the monetary decisions of actors operating within complex financial markets, where irrational and non-linear behavior is THE dominant and "emergent property".

And a passage I quoted from darbikrash in Part III:

"The notion of free market forces attempting to migrate patrons to a common system based on perceived stability or any other inherent advantages is not practical and subject to the same coercive laws of competition that any other unregulated commodity will precede. This means regulation is needed, and we come full circle back to the eventuality of regulatory capture, centralization and consolidation, and ultimately fewer choices for the consumer and just another, slightly varied distribution of the same wealth."

This is also why you think the EU/BIS architecture is "insulated" from a major monetary shift away from the dollar, instead of being completely exposed to and dependent on the debt-dollar system (and therefore, not isolated from it). I think the whole Eurodollar swap situation has made that quite clear, along with the ECB/IMF tag team "bailouts".

"Now he is on his preferred turf. A straight Marxian class struggle. Meanwhile FOFOA has specifically rejected the Marxian view of a division along class lines in his “savers vs debtors” and “hard vs easy money” concepts developed on the foundation laid by A/FOA."

Of course, that was the argument of Part I (and II and III)... that FOFOA's class distinctions and theory of economic value are flawed, while Marx's are much more accurate. So if you want to address that argument and why it is flawed, I suggest you do, instead of calling it a "straw man", which it obviously is not. It's a fundamental counter-argument to FOFOA's socioeconomic perspective.

JR said...

Greed, yes. Control, no.


More on this idea that HI is not a decision made by those in "control", its a reaction to the inevitable loss in confidence in the system they are trying to maintain (aka "Greed, yes. Control, no.").

From Credibility Inflation:

...Most simply stated, credibility inflation is the expanding confidence in the fiat financial system to always deliver a higher payoff tomorrow than today. And through credibility inflation we ultimately destroy the currency structure by believing it can somehow deliver more than reality will allow.

Credibility inflation is the exact antithesis of price inflations like the 1970's. It is why we saw low consumer price inflation for the last 30 years relative to the massive monetary and financial product inflation. It is partly why we saw gold stagnant or falling for 20 years. Yet it is just as much a product of monetary inflation as regular price inflation is (more on this in a moment). And it is much more catastrophic in the end.

Periods of high credibility inflation are generally not followed by smooth cycles of credibility DEflation. Instead, they tend to SNAP BACK into sudden real price inflation when confidence abates. What happens in the most extreme cases is real price HYPERinflation.


Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

And what sets the stage for hyperinflation is a period of high credibility inflation followed by the loss of credibility. During our period of high credibility inflation the dollar was invisibly hyperinflated in a near-monetary sense. This has already happened. We are already there.

When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve. Not in a shoebox, but in contractual promises of dollars to be delivered more or less on demand by somebody else. Claims denominated in dollars. This is how the vast majority of "dollars" are held; as promises to deliver more dollars. And this is why they are held this way. Because of the more in "more dollars." "Let me spend your dollars today and I will give you more dollars tomorrow!"

sean said...

you may find this post by FOFOA useful regarding calculation of the future value of gold:

Crack said...

Ash says

Of course, that was the argument of Part I (and II and III)... that FOFOA's class distinctions and theory of economic value are flawed, while Marx's are much more accurate. So if you want to address that argument and why it is flawed, I suggest you do, instead of calling it a "straw man", which it obviously is not


seem like folks here think it aint so obvious. you shud be the one splanin hows it aint?

Jeff said...

The price of gold is right back where it was on...Thursday. Did you enjoy the round trip? They seem to enjoy knocking it down the day after end-of-quarter. That way the ECB doesn't get too upset, and the boyz still get to make some volatility money (not Bitcoins). No harm, no foul?

This movie is boring, we have seen it before, and it is running long. I must not be the only one who feels this way, as the Marxist Deflationist argument is back in full swing on FOFOAblog. Gonna be a long hot summer.

Any thoughts on the ZH story that futures trading dropped over 90% in June? Is this some kind of data error or something more?

mortymer said...

The international propagation of the financial crisis on 2008 and a comparison with 1931
by William A. Allen and Richhild Moessner
Working Papers No 348
July 2011


We examine the international propagation of the financial crisis of 2008, and compare it with that of the crisis of 1931. We argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers created doubts about the stability of other financial companies, was an important propagator in 2008. We identify some common features in the propagation of the two crises, the most important being the flight to liquidity and safety. In both crises, deposit outflows were not the only important sources of liquidity pressure on banks: in 1931, the central European acceptances of the London merchant banks were a serious problem, as, in 2008, were the liquidity commitments that commercial banks had provided to shadow banks. And in both crises, the behaviour of creditors towards debtors, and the valuation of assets by creditors, were very important. However, there was a very important difference between the two crises in the range and nature of assets that were regarded as liquid and safe. Central banks in 2008, with no gold standard constraint, could liquefy illiquid assets on a much greater scale.

JEL Classification: E58, F31, N1

Keywords: financial crisis, liquidity, international monetary system, Great Depression"

DP said...


(Extracted from FOFOA:FOA on Hyperinflation)

Traveller: [...]
Perhaps the point of debate between us is: (A) Does severe deflation come next at [*] above followed sometime later by inflation and eventually hyperinflation, or (B) Does the US go directly to hyperinflation? This debate has many, many dimensions and is complicated to map. But let's give it a whirl.

ORO @ 39481 has stated that the FED will do the bidding of its owners (the banks) if events don't get too far beyond their control. I agree. Do banks and other holders of debt instruments (loans, mortgages, gov't and corporate bonds) want their wealth withered by hyperinflation? I don't believe for a moment that the creditor class is this egalitarian.

FOA: ==============No Traveler, I doubt the creditor class as a group is seeking to remove the financial inequalities that separate people through this coming process of hyperinflation. Far from it. As I stated above, the credit hyperinflation has already occurred. It's there, in place as we speak.

What is now faced by this non egalitarian lending crown is the choice of: having their debt instruments defaulted on and losing everything,,,,, or playing 'let the fastest runner win the game!'

My friend this is the choice you get when the currency your assets are denominated in hits the end of its "timeline".

Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets.



DP said...


1---> "the credit hyperinflation has already occurred" (written over a decade ago, no less)
2---> "They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I." ([sarc]You think this could ever happen?[/sarc] :-) )
3---> Did u see any of that 700B? Did anyone u know? (written 4 days ago, no less)

So, we have two scenarios to consider:

A) back in the day, borrower got spendable (credit) cash from lender. Borrower used cash to buy, I dunno, say a house or a car or whatever. Lender would get the cash back from the borrower in drips and drabs over some extended period of time (with interest, natch, but not an important point right now). Borrower would presumably be doing something productive in the economy over that extended period, adding value somewhere in the economy in return for an income that enabled them to keep up the payments to lender. At the end of the loan term, borrow still retains whatever he borrowed the cash for, lender has his cash back (with interest), wider economy has enjoyed the increase in goods and/or services over the period.

B) back in the day, borrower got spendable (credit) cash from lender. Borrower used cash to buy, I dunno, say a house or a car or whatever. Lender would get the cash back from borrower in drips and drabs over time, but... oh man! Borrower lost his income for some reason, and can't keep up the repayments after all! And -- Houston, we have a problem -- he's got lots of friends that also lost their incomes!!! :-O Lender can't afford to take the loss of all these bad loans because they very much overleveraged themselves in the boom and now don't have the reserves to suck it up. Government agency steps in to buy the loans from lender at par with fresh (base money) cash. Government agency can reterm the loan to make it work for the borrower somehow or another that it best sees fit (or accept the loss -- to the goverment it's only other people's money after all...) meanwhile, lender got all the loaned credit money back earlier than originally scheduled, in the form of immediately-spendable base money -- and spends it into the economy. Voila! Not only is credit money converted into high-powered base money that can be multiplied later through lending if desired, but also previously pent-up inflation of the money supply is released into the wild early.

Woah boy! What a difference between "a dollar in M3" and "a dollar in M0". Same number, totally different effect.

mortymer said...

Could not open it at A.Fekete´s page:

Ash said...


"seem like folks here think it aint so obvious. you shud be the one splanin hows it aint?"

If you mean how it aint' a straw man argument, then no I shouldn't have to explain that, because it's just plain common sense.

If you mean how the class dynamic ain't the way FOFOA says it is, well then, that's why I wrote five articles, isn't it?

Ash said...

"Woah boy! What a difference between "a dollar in M3" and "a dollar in M0". Same number, totally different effect."

But it's not the same number. Remember, the $2T on the Fed's balance sheet is a tiny fraction of all the credit that was generated over the last few decades, esp when including shadow liabilities. The same can be said for the ROW.

Terry said...

Just so you know, we only rent this planet from the owners. The owners require payment in gold only, and they collect every 3600 years. Sumerian tablets.

DP said...

But it's not the same number. Remember, the $2T on the Fed's balance sheet is a tiny fraction of all the credit that was generated over the last few decades, esp when including shadow liabilities. The same can be said for the ROW.

Did all the credit that was generated over the last few decades go bad already? I must have missed the memo. My understanding is some of it got irretrievably bad and was rescued, to prevent the remainder circling the bowl with it and taking the entire system underwater. But, for now, a lot of the remainder keeps getting an accounting shove every time it looks like it might slip down the sidewall as it loses momentum, to keep it suspended a Wile longer.

DP said...

Meanwhile, would you not agree that what has by now made its way onto the Fed's balance sheet, has become qualitatively different to how it was previously? There isn't more, it's just different.

Quantitative Easing is a misnomer.
Qualitative Easing seems more accurate.

costata said...


"Qualitative easing"

Now there's an interesting addition to the lexicon.


enough said...

From UBS daily PM report today july 6:

can anyone explain this to me:

Ideas on how to resolve the debt ceiling problem without actually raising the ceiling itself, such as declaring it unconstitutional, have been widely circulated this week.

me: here's the really interesting part

One of these involved the Fed selling Treasurys to finance purchases of gold from the Treasury, buying the latter some time; once the debt limit is increased, Treasury could simply buy back the gold. This sounds asset-market neutral but the notion of a sudden $300 bn increase (from the Treasury's gold holdings) in the Fed’s balance sheet is bound to rekindle debasement fears and push up the price of gold. That could cause the Treasury to ultimately make a loss on the transaction in any buy-back, although it's not clear how the Fed and the Treasury would deal with a price discrepancy. In any case, this would be a further example of the increased mobilisation of gold by the official sector, which is ultimately gold-positive

thanks, E

JR said...

Good stuff DP,

BB agrees

"Incidentally, in my view, the use of the term "quantitative easing" to refer to the Federal Reserve's policies is inappropriate. Quantitative easing typically refers to policies that seek to have effects by changing the quantity of bank reserves, a channel which seems relatively weak, at least in the U.S. context. In contrast, securities purchases work by affecting the yields on the acquired securities and, via substitution effects in investors' portfolios, on a wider range of assets."

Yes, he has been explicitly clear the goal is not to pump up bank reserves and drive the money multiplier (despite the "OMG the money multiplier doesn't work" nonsense from the likes of utter clowns such as Keen and Mish).

Its not quantitative easing, as "securities purchases work by affecting the yields on the acquired securities," aka we need to do prop up the nominal pricing of debt instruments to keep the credit system functioning. BB calls it credit easing (aka life support):

"In contrast, the Federal Reserve's credit easing approach focuses on the mix of loans and securities that it holds and on how this composition of assets affects credit conditions for households and businesses. This difference does not reflect any doctrinal disagreement with the Japanese approach, but rather the differences in financial and economic conditions between the two episodes. In particular, credit spreads are much wider and credit markets more dysfunctional in the United States today than was the case during the Japanese experiment with quantitative easing. To stimulate aggregate demand in the current environment, the Federal Reserve must focus its policies on reducing those spreads and improving the functioning of private credit markets more generally."

The credit system is broke and we are printing money to buy securities to ensure nominal performance to allow the credit system to continue to function. Its not about pumping bank reserves to encourage more traditional bank lending, the game is structured fiance - its about propping up the securitized debt markets and big sovereign/corporate debt markets to ensure the nominal performance that the credit system needs to keep functioning.

Cheers, J.R.

Nick said...

hello enough,

one thing i though of when reading that idea is what Another said when he stated "many persons never gained understanding that the American gold is kept by the "Treasury", not the maker of your money, "The Federal Reserve". It is there for good reason, as the present world currency system is not a function of American law! If the US were to place gold in the hands of the US/CB as reserves for the dollar, the BIS could claim it! It is, as a point of contention and of no real use. I think not a war would come of this claim, if it should happen!"

I know you were not suggesting that it would be placed on the Fed's balance sheet as a reserve backing, but rather a temporary asset. Would that quote about the BIS still apply?

Ash said...

Dr. Keen has mainly criticized the money multiplier goal in response to Obama's explicit comment in 2009:

“there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – ‘where’s our bailout?,’ they ask...

the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth."

That's the President of your country speaking (if your're American), so yeah, I think it deserves criticism. It's also not a stretch to associate the man re-appointed by Obama, Bernanke, with that goal as well, before he made the speech about affecting credit yields in late 2010.

Now, just because BB has figured out he's actually a kleptocrat doing the bidding of his financial masters, rather than infusing capital into the real productive economy, doesn't mean he has guaranteed "nominal performance" of anything, except perhaps Treasuries. Propping up debt-based asset markets with "easy" monetary policy, hmmm... sounds like something Greenspan would do in the middle of the sub-prime housing bubble.

DP said...

And, as if by magic...

JR said...

A clueless commentator writes:

"However, neoclassical economic theory never caught up with either the data, or the actual practices of Central Banks—and Ben Bernanke, a leading neoclassical theoretician, and unabashed fan of Milton Friedman, is now in control of the Federal Reserve. He is therefore trying to resolve the financial crisis and prevent deflation in a neoclassical manner: by increasing the Base Money supply.

Give Bernanke credit for trying here: the rate at which he is increasing Base Money is unprecedented. Base Money doubled between 1994 and 2008; Bernanke has doubled it again in just the last 4 months.

If the money multiplier model of money creation were correct, then ultimately this would lead to a dramatic growth in the money supply as an additional US$7 trillion of credit money was gradually created.


Yup, the commentator is asserting BB is printing money to try to increase reserves and jump start the money multiplier process.

Here is more strawmaning from the commentator in the same piece as he continues to conflate his belief about BB "creating money to target the the money multiplier" with BB's clear statement that he is not, and is instead addressing a separate goal - that by increasing base money he can keep dollars cheap:


"[commentator]If neoclassical theory was correct, this increase in the money supply would cause a bout of inflation, which would end bring the current deflationary period to a halt, and we could all go back to “business as usual”. That is clearly what Bernanke is banking on:

[BB quote]“The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days.

What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation…

If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.” [8] [end BB quote]


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